SGD: MAS surprises with a zero slope - Nomura

Research Team at Nomura, notes that the Monetary Authority of Singapore (MAS) announced a shift to a zero rate of appreciation of the S$NEER policy band, with no change to the mid-point or slope.

Key Quotes

• “Consensus and Nomura expectations were for no change to FX policy.

• We expect MAS policy to remain unchanged over the remainder of the year, but we attach an approximate 30% probability to further easing, given the potential external headwinds for the economy. Following today’s policy move, any further easing would most likely take the form of a re-centering of the mid-point of the policy band.

• Following the significant depreciation in S$NEER, we reduce our short S$NEER position by 50%. We continue to expect it to trade in a -1.0 to +0.5% range around the mid-point. We also remain short SGD/MYR.

• Q1 GDP growth was unchanged in Q1 from Q4 at 1.8% y-o-y, with some improvement in manufacturing and construction offset by weaker services sectors. We maintain our full-year 2016 forecast of 1.8% (official forecast: 1.0-3.0%).

• The MAS expects core inflation to be in the lower half of its unchanged 0.5%-1.5% forecast range, consistent with our forecast of only a slight rise to 0.7% in 2016 from 0.5% in 2015.

• On rates, we suggest investors maintain a flattening bias in SGD rates. We maintain our recommendation to receive 6mfwd2s5s10s in SGD IRS.”