Singapore dollar jumps after central bank unexpectedly keeps policy unchanged

SINGAPORE: The Singapore dollar jumped on Tuesday, leading gains in emerging Asian currencies, after the central bank kept its monetary policy unchanged and said that growth was evolving in line with expectations and inflation could pick up.
    The Monetary Authority of Singapore (MAS) said it would
maintain a modest and gradual appreciation of the Singapore
dollar's nominal effective exchange rate (NEER), defying
expectations it might loosen policy. 
    The Singapore dollar strengthened to 1.3597 per
U.S. dollar after the central bank's move spurred investors to
cut bearish bets on the currency. Before that, the Singapore
dollar weakened to 1.3746, compared with its previous close of
1.3714.
    "The statement is a bit hawkish in my view. The MAS is still
worried about future incipient medium inflationary pressures and
growth outlook is not so dire," said Saktiandi Supaat, head of
FX research for Maybank in Singapore.
    "We expect SGD to appreciate vs USD in the short term,
supported by unwinding of some of the long USD positions but
should return to weakness eventually later as dollar strength
remains."
    The city-state's economy grew 1.1 percent in the first
quarter on an annualised and seasonally adjusted basis, beating
a market forecast of 0.5 percent growth in a Reuters' poll.
 
    The MAS manages monetary policy by letting the Singapore
dollar rise or fall against the currencies of its main trading
partners within an undisclosed trading band based on its NEER.
    Despite its latest policy statement, analysts do not see the
currency's strength lasting long, especially as the U.S. Federal
Reserve is seen raising interest rates within this year.
    "We continue to expect the SGD to weaken against the USD,
heading into the anticipated Fed rate hike in September," said
Heng Koon How, Credit Suisse Private Bank's senior currency
strategist.
    "We are maintaining our three-month forecast of 1.40,
followed by 12-month forecast of 1.43."
    Some analysts expect the MAS to ease policy later this year
to support the economy and inflation.
    That is also darkening the outlook on the city-state's
currency.
    Jonathan Cavenagh, senior FX strategist with Westpac in
Singapore, saw core inflation pressures as remaining muted and
domestic demand as soft.
    "This creates the risk of an easing at the next meeting in
October or another inter-meeting move," said Cavenagh.
    "This leaves us still inclined to buy USD/SGD dips and we
suspect the SGD NEER will continue to trade comfortably below
the mid-point of the band. Look to buy dips back to 1.3600 and
1.3550."

    CURRENCIES VS U.S. DOLLAR
    Change on the day at 0155 GMT
  Currency    Latest bid   Previous day    Pct Move
  Japan yen       119.91         120.13       +0.18
  Sing dlr        1.3626         1.3714       +0.65
  Taiwan dlr      31.257         31.342       +0.27
  Korean won     1096.80        1098.60       +0.16
 *Baht             32.54          32.54       +0.00
  Peso             44.65          44.67       +0.04
  Rupiah        12975.00       12980.00       +0.04
  Rupee            62.51          62.51       +0.00
  Ringgit         3.7010         3.7075       +0.18
  Yuan            6.2141         6.2167       +0.04
 
  Change so far in 2015
  Currency    Latest bid  End prev year    Pct Move
  Japan yen       119.91         119.66       -0.21
  Sing dlr        1.3626         1.3260       -2.69
  Taiwan dlr      31.257         31.718       +1.47
  Korean won     1096.80        1099.30       +0.23
  Baht             32.54          32.90       +1.11
  Peso             44.65          44.72       +0.16
  Rupiah        12975.00       12380.00       -4.59
  Rupee            62.51          63.03       +0.84
  Ringgit         3.7010         3.4965       -5.53
  Yuan            6.2141         6.2040       -0.16
  * Thailand's financial markets are closed from Monday to
Wednesday for holidays.
- Reuters