SEOUL (Reuters) – The Singapore dollar on Wednesday hit its weakest in nearly four and a half years, driving losses among emerging Asian currencies, as regional central banks may follow the city-state’s unexpected monetary policy easing to tackle deflation.
The Monetary Authority of Singapore (MAS) reduced the slope of its monetary policy band ahead of its scheduled review in April. The central bank also cut its inflation forecast for the year.
Singapore manages monetary policy by controlling the exchange rate, rather than borrowing costs, because trade dominates the economy.
The surprise move sent the Singapore dollar to 1.3570 per US dollar, its weakest since August 2010, on hedge funds selling.
Malaysia’s ringgit and Thailand’s baht also fell, reflecting perceived risks that the central banks of those countries could surprise with interest rate cuts later in the day.
“Bank of Thailand is a potential candidate. We see risks of a move today,” said Jonathan Cavenagh, senior FX strategist with Westpac in Singapore, when asked if other central banks will ease.
South Korea’s central bank is also expected to cut its interest rate, he added.
A number of central banks have eased their monetary policy in recent days to cope with deflation and prop up economies, leading to speculation that the US Federal Reserve could take a dovish turn in its post-meeting statement after this week’s meeting.