Boy, did that escalate quickly. As Bloomberg reports, Singapore's Central Bank, the Monetary Authority of Singapore (MAS) became the 10th national bank to loosen monetary policy in January alone.
The bank said it was adjusting the band in which the Singapore Dollar (SGD) trades relative to a basket of trade-weighted currencies. The MAS does not disclose details on the width of the trading band (managed float) nor the constituents of the trade-weighted currency basket. What the MAS did say was it expected inflation to come in between -0.5% to 0.5% for 2015, a downward revision from its previous expectation of 0.5% to 0 1.5%.
This comes as a surprise to markets because the MAS convenes only twice a year to decide on its monetary policy. Analysts have been quick to note that yesterday's actions probably highlighted the dire straits the regional economy might face if no action was taken.
Yes, you read that correctly. One of the world's most respected central banks just said to expect deflation in Singapore this year. Here at Business of Finance, we have been banging the table and blowing the proverbial whistle on the misconstrues of price risks. Before the current episode of widespread monetary easing by central banks all across the world, there were still hermits that believed inflation was going to "explode" in our faces anytime. Gold bugs being the prime example. What fools.
We aren't surprised at all that we are indeed correct on our warnings. We'll say it again here: Deflation is the real Juggernaut in the room. Take it for what it's worth.
Managing the Singapore Dollar's float against major currencies such as the Dollar, Euro, and Yen is the MAS's main monetary policy tool. Contrary to other central banks, it does not adopt adjusting benchmark interest rates as one of its primary policy tools. The MAS's benchmark interest rate (Standing Facility Deposit) has been at the zero lower bound since 2010 and is set to stay there.
The MAS earlier Wednesday joined the ranks of the ECB, whose president, Mario Draghi just days ago launched Europe's most monumental financial bazooka yet.
The MAS's surprise move also came on the heels of the SNB's bombshell which probably triggered a nuclear winter over the Swiss Alps and obliterated every single sentient creature that was short the Swiss Franc.
Asia, it seems, has been the latest candidate to shudder in both the disinflationary and deflationary winds of sub-$50 crude oil prices; the Bank of India earlier this month unexpectedly lowered its benchmark repurchase rate although the country is widely expected to be the beneficiary-in-chief of cheap energy. Thailand's central bank was also pressured to lower rates yesterday but didn't yet blink. It seems all efforts were attempts to arrest decelerating growth and to boost exports. Volatility has just gotten more volatile. Brace!
We cannot of course leave out the real widow-maker that is the Bank of Japan's punchbowl, from which practically unlimited amounts of Yen flow from in extension after extension of its LSAP (large scale asset purchase program). The BoJ had recently told financial media that it was considering other "creative" methods to boost domestic price levels. We wish Kuroda and his henchmen the best of luck in their experiment with monetary Frankenstein.
Apart from Asia, Canada's central bank, a national institution that was usually well regarded by the financial community, unexpectedly lowered its benchmark rates almost 2 weeks ago, flipping the Canadian Dollar off its axis and into free fall. The reason? Low inflation and waning inflation expectations. The Danish central bank had just lowered its rates days before. Denmark on of Europe's largest energy exporters and it has borne the full brunt of Oil's collapse.
We will spare readers the agony of replaying the entire currency wars script; matters are looking ripe for another resurgence of the 2011 era of tit-for-tat, beggar thy neighbor currency wars. Although competitive devaluation is allegedly not the motive of monetary easing, it sure has the unintended effect of such. We believe though, that the MAS does intend to cheapen the Singapore Dollar to boost exports.
Here is Bloomberg with the rest of the story: