Wednesday, January 28, 2015

The Latest, But Not The Last, Domino To Fall

In a surprise move, MAS has just eased their policy target (excerpt; emphasis added):

MAS Monetary Policy Statement

1. Since the last Monetary Policy Statement in October, developments in the global and domestic inflation environment have led to a significant shift in Singapore’s CPI inflation outlook for 2015. As part of its ongoing economic surveillance, MAS has assessed that it is appropriate to adjust the prevailing monetary policy stance.

2. In October 2014, MAS maintained a modest and gradual appreciation path of the S$NEER (Singapore dollar nominal effective exchange rate) policy band, with no change to its slope, width, and the level at which it was centred. This policy stance, which has been in place since April 2012, was assessed to be appropriate for containing domestic and imported sources of inflation and for anchoring inflation expectations.

3. Over the last three months, the S$NEER has generally fluctuated around the middle of the policy band. The depreciation of the S$ against the broad-based strength of the US dollar was partly offset by the appreciation of the S$ against the Malaysian ringgit, euro, and Japanese yen. Thus, movements in the S$NEER have been relatively muted compared to bilateral S$ movements against the major currencies....

…10. Taking these developments into account, MAS is revising its inflation forecasts for 2015. CPI-All Items inflation is now projected to come in at -0.5–0.5%, from the 0.5–1.5% expected in October. Meanwhile, MAS Core Inflation is expected to be 0.5–1.5% this year, down from the earlier forecast range of 2–3%.2

11. The Singapore economy remains on track to grow at a moderate pace of 2–4% in 2015. However, MAS is reducing its forecasts for CPI-All Items inflation and MAS Core Inflation for 2015. Imported inflationary pressures are receding, with global oil prices likely to stay subdued this year. While domestic cost pressures will remain, the pass-through to consumer prices is expected to be moderate.

12. MAS will therefore continue with the policy of a modest and gradual appreciation of the S$NEER policy band. However, the slope of the policy band will be reduced, with no change to its width and the level at which it is centred. This measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and appropriate for ensuring medium-term price stability in the economy.

As usual, nobody really knows for sure where the level, slope of appreciation or width of the intervention band really are (how’s that for a monetary policy rule), but on the flip side, this announcement came well before the usual MPC meeting in April.

But Singapore is just the latest in a series of gradual monetary policy easing we’ve seen across the globe in the last few months. This month alone, we’ve seen Canada, Turkey, Denmark, Switzerland (with a bang!), and India cutting policy rates. Out of the major global economies, only Brazil has tightened policy. Speculation is that the next ones in the region could be Thailand, Taiwan and potentially Australia. Inflation everywhere is slowing down, but so is growth.

The only certain thing here is that we’re going to see a lot more currency volatility until there’s more clarity…from the Fed, from the commodity markets and in economic growth generally.


  1. I remember you once commented on the pitfalls of having a strong exchange rate. (people keep saying S$ getting stronger)

    Last month, my company decided to move 800 desk jobs from Singapore to KL.

    How prescient :)

    - Khunie Singh

  2. It isn't that big a deal.

    All the MAS is doing this time around is "slowing" the appreciation of the Sing Dollar.

    A quick check on the Oanda website shows that the Sing Dollar is little unchanged against the Ringgit.

    Maybe the MAS decided that the Sing Dollar is a bit too much of a "safe haven" currency!

    1. @anon 4.29

      Tell that to the market. SGD has dragged MYR down with it, that's why there's little change to the cross rate.

  3. Hahahaha dude, you couldn’t work out a simple thing like width, level and slope. How comelah, I guess you are so into heavy modeling that you forgot the light stuff. So here goes, watch and learn.

    Angle of Slope = the nature of which is determined by the vertical incline of the knees and the horizontal spread of the torso, either raising it or lowering it to receive the desired thrusts.

    Width = refers to the circumference of the hole and is determined by the girth of the shaft thrusting into it.

    Level = c---level parameters which guides the thruster as he works his way into the shaft to derive maximum satisfaction for both the thruster and the shafted. Level is better rendered as gradient to better capture movements of the prone body

    Therefore, what determines slope, level and width is highly reliant on what slope positions a Sing banana (euphemism) assumes to receive its favourite gwailoh’s thrust while the girth of the gwailoh will determine the circumference of the resultant thrust while the angle of attack will be determined by the angle of slope.

    Complicated ….ah? But that’s reducing it to gutter math for you to fathom better….hahahaha

    Having got the technicalities outta the way, here are the results of the butt thrust modeling conducted.

    1.Level (Gradient) (decimal) = Rise / Run = 1.35 /1 cm = 1.35cm
    Hence for every 1 cm of horizontal movement of banana’s body, there is 1.35cm in altitude gain.

    2.Slope angle is the angle α between run and rise. By definition of tangent in trigonometry: tan α = Rise / Run

    Slope = Given that the horizontal plane (run) is 1.00 cm with a vertical knee raise (rise) of approximately 1.35 cm, we can now calculate the angle of attack (α).

    Value of α is determined by taking the arctangent (tan-1) of the rise/run ratio or arctan(y) = tan-1(y) = x+ kπ

    α = arctan(1.35/1.00)
    = 53.47°

    3.Having determined the angle of attack for the gwailoh, we next roughly determine the width of the resultant shafting given that the diameter is given at 1.00cm.

    Note : These are approximate values as the simple model here does not provide for deviations due to tears, fissures or torsions arising from the thrusts nor does it account for the mechanics of the thrusts in terms of intensity, force exerted etc (given the level of violence or lack thereof involved)

    Hence taking diameter to be 1cm and π= 3.14 and applying the formulae C= πD we get:

    C = 3.14 x 1cm
    = 3.14cm

    Briefly, the gwalioh should set his angle of attack at 53.47 degrees while goading the Sing banana to effect a vertical movement of 1.35cm to enjoy optimal thrusts that will yield a circumference of +/-3.14cm with minimal torsion and bleed.

    See, I have now solved one of the great abiding mysteries of our time by applying simple mathematical principles. How that escaped you is simply beyond me!!!

    Sometimes I wonder, why that beautiful, curvaceous, c--- teasing damn sexy Add Math teacher of mine insisted on calling me a filthyhead despite me acing all my Math exams as top of the form (angkat bakul mah) and doing everything possible to tease….errrr..please her.

    Oh she was a Malay/Chingk to boot!! . Ah! That explains why she pitied all those hapless Chingk desperadoes at their wits end to outwit filthyhead. Wish I had bedded …..ah never mind…better ones have been French kissed and enjoyed “Down Under”….hahahaha

    Warrior 231

    1. It's a pity that the Ringgit isn't that attractive to "gwailiohs"(sic). Maybe it is lacking in "sex appeal" hahaha.

      Ok, getting away from the "soft porn", I think that the MAS is simply putting itself ahead of the curve.

      MAS has projected headline inflation for 2015 at -0.5 to 0.5 per cent and core inflation at 0.5 to 1.5 per cent, which is benign by any standard.

      There's a lesson of sorts here for BNM. Maybe it should manage the exchange rate for the Ringgit rather than managing the interest rate.

      As was pointed out in a Singapore Business Times commentary: "The exchange rate is also relatively easy for the central bank to control - by buying and selling Singapore Dollars. By choosing to manage the exchange rate, MAS gives up control over domestic interest rates. As capital flows in and out freely, interest rates are largely determined by foreign interest rates and how investors expect the Singapore Dollar to move."

    2. @Warrior

      I'm glad I amused you. These days I'm covering so many countries I don't really have much time for modelling. Can I outsource to you?

      Here's the project spec:

      Figure out MAS effective policy settings.


      1. SGD nominal effective exchange rate
      -basket of currencies, composition unknown
      -currency weights used, also unknown
      -periodicity of weight changes, again unknown

      The NEER is probably trade weighted, but the cutoff point for inclusion is unknown (broad e.g. trade weight exceeding 1%/2%? narrow e.g. trade weight exceeding 5%/10%?)

      2. Estimating slope of change: depends on accurate NEER series

      3. Estimating intervention bands, can probably be estimated in terms of changes in reserve accumulation (or at least, what's disclosed on MAS balance sheet)

      Have fun