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Early monetary policy tightening to see stronger Singapore Dollar on average in 2022: Fitch Solutions

Amala Balakrishner
·2-min read

Fitch Solutions is expecting the Singapore Dollar to average at $1.3450/USD this year, following a “slightly stronger position"

Risk and industry research consultancy Fitch Solutions is expecting the Singapore Dollar to average at $1.3450/USD this year, following the “slightly stronger position the unit will be in”.

The move comes after the surprise monetary policy tightening by the Monetary Authority of Singapore (MAS) on Oct 14.

See: Inflation concerns spurs surprise monetary policy tightening by MAS; Accumulation in external and domestic cost pressures sees MAS tightening Singdollar policy stance in Oct

Fitch’s analysts note that the SGD has already strengthened slightly to trade at $1.3502/US of Oct 18, from $1.3609/USD on July 26.

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However, the year-to-date value of the local currency has weakened to $1.3403/USD as of Oct 18, from $1.3351/USD on July 26.

“We see little prospect of further significant weakening, given that the MAS has reinstated a slight upward slope in its S$NEER policy band,” the analysts say.

The S$NEER – or Singapore Dollar Nominal Effective Exchange Rate – refers to the slope at which the Singapore dollar fluctuates at.

Going forward, the analysts expect the Singapore dollar to average slightly stronger in 2022 “given [our observation of] appreciatory factors marginally offsetting depreciatory factors over the coming year”.

Their stance is that the central bank will further tighten monetary policy in 2022 while a more stable Covid-19 situation that is expected would boost investor confidence and strengthen the dollar.

Among the downsides they list is that US Federal Reserve will tighten monetary policy earlier in 2022. Back home, they are expecting slightly higher inflation levels and slightly lower real GDP growth compared to the US.

For more stories about where the money flows, click here for our Capital section

They add that Singapore’s growth in 2021 and 2022 depends on the Chinese economy “managing to remain largely stable despite the slowdown caused by the four downside risks that it is currently facing, including risks surrounding financial stability in especially the real estate sector and the widespread power shortages”.

These downside risks will in turn “reduce the attractiveness of the SGD,” the analysts quip.

To this end, they have revised their average outlook for 2022 to $1.3400/USD from $1.3600/USD previously.

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