“We flagged the growing possibility of a policy shift due to strong local disinflationary pressures, sluggish domestic growth, and risks to the global outlook,” Jason Daw, head of Asian foreign-exchange policy at Societe Generale, said in a note Wednesday. “With these forces likely to remain in place over the coming months, a further policy adjustment (i.e. moving to a no appreciation bias) cannot be ruled out.”
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Expectations the MAS may move again at its April or October reviews may spur traders to use the Singapore dollar as a funding currency, he said.
He isn’t alone in expecting further pressure on the Sing.
UOB now expects the U.S. dollar will trade toward the 1.40 Singapore dollar level over the next six months. ANZ expects the currency pair to end the year at 1.39, up from its previous forecast of 1.37. ING put its forecast for the U.S. dollar to fetch 1.36 Sing under review for upward revision as well.
However, some expect the MAS move may be a “one-and done” step.
“All of the factors that have pushed down inflation are on the supply side, and should just have one-off effects. There is no reason to think that deflation will become entrenched,” Daniel Martin, Asia economist at Capital Economics, said in a note Wednesday. He expects the low inflation will boost real incomes and domestic demand, leading to a faster take up of economic slack and noted that the MAS isn’t concerned about growth, keeping a growth forecast of 2-4 percent for the year.
“Given the reasonably healthy outlook for the economy and the likelihood that inflation will rebound toward the end of 2015, we do not expect the MAS to loosen policy again when it meets in April,” Martin said.
He’s not alone.
“This is a massive boost for the export-oriented economy of Singapore. With a softer Singapore dollar, Singapore can now push its goods and services out more easily,” Howie Lee, an investment analyst at Phillip Futures, said in a note Wednesday. “Another adjustment in April is unlikely.”
—By CNBC.Com’s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1