January 2015 might remain in history as the month with the most central bank surprise decisions forced onto the forex markets. First there was the Swiss National bank turmoil, closely followed by the Bank of Canada cutting rates, a very unexpected decision.
After the ECB’s press conference last week, one wouldn’t imagine that there to be much left on the line. However, this morning the Monetary Authority of Singapore (MAS) became the fourth institution to surprise markets with its monetary policy decision.
In order to conduct monetary policy and balance its inflation outlook, the MAS is maintaining a managed float on the Singapore dollar’s exchange rate.
The central bank cited the deteriorating domestic inflation outlook, outlining that the rate at which the Singapore dollar appreciates should be decreased in order to counteract downside pressure. While the Singapore dollar has been depreciating since April 2012, the central bank has maintained a stance of allowing appreciation at a rate of the slope of the trend.
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Worries about the rate against the euro and South-East Asian currencies are prevailing, as the broad based US dollar rally has been offsetting any prospects of depreciation versus the basket of currencies, which are some major trading partners of Singapore.
In reality the US dollar has been rallying faster against the euro and a number of Asian currencies, which has led to a lack of results from the tightening of monetary policy by gradually forcing the Singapore dollar only lower.
Following the move, the currency has depreciated about 1%, which is quite a lot for a single day in a central bank-managed currency.