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Singapore’s SARS playbook points to 2017 low for Its currency

(PHOTO: Getty Creative)

By Ruth Carson and Masaki Kondo

(Bloomberg) -- Singapore’s currency may tumble to 2017 lows if the central bank responds as strongly to the spread of the coronavirus as it did to the SARS epidemic two decades ago.

That’s the view of Tan Teck Leng, a macro strategist at UBS Group AG’s Global Wealth Management Chief Investment Office, who thinks the Monetary Authority of Singapore could re-center its policy band for the currency lower. It took this rare action in 2003 to deal with the fallout from SARS and doing so again could see the local dollar dip through 1.40 versus the greenback, according to Tan.

Singapore’s fiscal chiefs pledged S$6.4 billion ($4.6 billion) in dedicated support for the economy on Tuesday, underscoring the level of concern among policy makers about the threat posed by the virus. The city state has more than 80 confirmed cases of the coronavirus and its trade-dependent economy is particularly vulnerable.

“There is a chance that if the virus were to get worse, that a re-centering down is possible,” Tan said in an interview in Singapore. “They can be very granular about how much they want to ease.”

Singapore’s dollar has already slid 3.3% against the greenback this year, making it the worst-performing currency in Asia after Thailand’s baht.

The MAS most recently eased policy in October by slightly reducing the slope amid the U.S.-China trade war and slowing growth. The central bank has re-centered the band lower only three times since 2001, and it did so only after it had shifted to a neutral policy stance.

The currency dropped to a four-month low earlier this month after the MAS said there was room within its exchange-rate band to accommodate currency weakness to counter the economic fallout of the disease.

The central bank conducts it monetary policy through its currency and has three parameters to control the Singapore dollar: the pace of appreciation in the exchange rate, known as the slope; the width of the policy band; and the level at which that band is centered.

Over the past two decades, most changes have been made by altering the slope.

“The immediate consequence of a downward re-centering is that there’s suddenly additional room for the Sing NEER to weaken,” said Tan, referring to the nominal effective exchange rate. Assuming that the currency is trading close to the weaker end of the band, re-centering down could open the way for 1%-2% of additional depreciation, he said.

The Singapore dollar was trading at 1.3922 per greenback on Wednesday.

The central bank’s next policy review is in April.

UBS sees the most likely scenario for April is that MAS flattens the slope as the impact of the virus is brought under control.

Still, re-centering the band downward while keeping the slope positive is “in the realm of possibility,” said Tan.


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