Singapore tightened monetary policy. The Monetary Authority of Singapore does not touch interest rates. They wiggle the exchange rate of their dollar against a basket of currencies. Oil went up so they adjusted the band. Inflation got scary for exactly one person at MAS who checked the numbers on a Tuesday.
Every central bank on earth pulls the interest rate lever. Singapore looked at that lever and said no thanks, we built a different lever. They manage their currency slope and width against trading partners. The mechanism sounds like something a guy named Derek invented during a finance retreat in 1986 and everyone was too polite to question it.
This was a surprise move. Markets expected nothing. MAS delivered something. The something involves appreciation bias in the nominal effective exchange rate policy band. If you understood that sentence without Googling three terms, you are exactly the kind of person who loses money trying to trade forex at 2 a.m. on a Sunday.
Oil prices climbed. Singapore imports all of its oil. Inflation ticked up. The MAS panicked and shifted the band. They could have done nothing. They could have waited. They could have let inflation run a bit hot like every other country did for two years straight. Instead they surprised the market by adjusting a policy tool so obscure that half the financial press had to Wikipedia how it works before filing their stories.
Retail traders woke up to see SGD pairs moving. They checked the headlines. They read the words "policy band slope adjustment" and convinced themselves they knew what that meant. They opened positions. The positions immediately went red. They held anyway because surely the fundamentals would kick in. The fundamentals were a currency mechanism designed in the 1980s by technocrats who have never met a retail trader and would not stop to help one if they saw him drowning.
Singapore tightened policy that does not exist anywhere else to fight inflation that might happen because oil might stay high. The surprise was that anyone thought this mattered.
Photo by Zhu Hongzhi on Unsplash
Leave a Comment