The Singapore dollar is the top-performing Southeast Asian currency this year, but slowing inflation and growth worries may push it down the rankings in coming months.
Advertisement
The city state’s currency is up about 5 per cent versus the US dollar this year, sending its value against a trade weighted basket of currencies toward the upper boundary of the Monetary Authority of Singapore’s policy band. However, headwinds appear to be picking up, with the trade ministry last month cutting its 2025 growth forecast to a range of 0 per cent to 2 per cent, citing global trade tensions.
In addition, the Monetary Authority of Singapore lowered its core inflation target, opening the door for further easing this year, which may also weigh on the currency. The central bank uses the exchange rate as its main policy tool rather than interest rates. It focuses on the currency’s nominal effective exchange rate, referred to as S$NEER, which it allows to move within a policy band.
That rate is 1.1 per cent above the mid-level of the authority’s policy band, according to estimates from Philip Wee, senior currency economist at DBS Bank Ltd. He believes it “should be closer to mid given where the new and lower inflation and GDP growth forecasts are”.
The country’s non-oil domestic exports data, due Friday, may offer insights into the early effects of tariffs.
“It is possible that the S$NEER may start to ease towards the midpoint when the hard data starts to snap toward the pessimism that is increasingly reflected in the survey data,” said Moh Siong Sim, FX strategist at Bank of Singapore.
Advertisement
What is more, the Monetary Authority of Singapore may decide it needs to act to resolve market imbalances.