The Singapore dollar weakened to a four-month low after the central bank said there’s “sufficient room” for the currency to ease if the economy weakens due to the impact of the coronavirus.
The currency, which is maintained in a band against a basket of peers, has been fluctuating near the upper end of its boundary since October, and could ease, the Monetary Authority of Singapore said in a statement Wednesday. The MAS maintained its policy outlook and said it will meet in April, as scheduled.
Traders across Asia have been ratcheting up bets that central banks in the region will have to ease policies as the virus outbreak saps China’s economy. Singapore, with its trade-dependent economy, may be susceptible to any prolonged impact that could freeze supply chains.
“The hit to the economy, both from tourism and supply-chain impact from China, has obviously opened the door to easing,” said Mitul Kotecha, senior EM strategist at TD Securities in Singapore. The Singapore dollar “has reacted negatively, extending its recent decline, and will likely remain under pressure as markets increasingly price in easing.”
The Singapore dollar dropped as much as 0.9% to S$1.3824 against the U.S. dollar after the announcement. It’s the worst-performing currency in Asia on Wednesday.
“There is sufficient room within the policy band to accommodate an easing of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) in line with the weakening of economic conditions” due to the virus outbreak, the MAS said in its statement.
The city-state already has been planning measures to shore up businesses and consumers still feeling the effects of the U.S.-China trade war and limp global demand. The virus has added to worries about the economic outlook in Singapore, where there are 24 confirmed cases of coronavirus.
The government is forecasting the economy should expand by 0.5%-2.5% this year after 0.7% growth in 2019. Finance Minister Heng Swee Keat has signaled that he will deliver a supportive budget on Feb. 18.
In its last scheduled announcement, in October 2019, the MAS eased policy for the first time since 2016 and said domestic growth -- particularly from manufacturing -- remained under pressure.
The MAS guides the local dollar against a basket of other currencies, adjusting the pace of appreciation or depreciation by changing the slope, width and center of a currency band. It doesn’t disclose details of the basket, the band, or the pace of appreciation or depreciation.