SEOUL: The Singapore dollar hit its weakest in nearly 4½ years today (Jan 28), 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-fund selling. The ringgit and the baht also fell, reflecting perceived risks that the central banks of these 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.

Singapore dollar
Analysts now assume the MAS's slope in the Singapore dollar nominal effective exchange rate(NEER) appreciation is at 1% per annum, compared with their previously thought 2% appreciation. They are revising down the Singapore dollar's targets.

Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore, expected more stimulus in April. "Another re-centering is still on the cards. It may be possible to ease further in April," he said.

MAS earlier said it would continue to stick with a policy of allowing the Singapore dollar to appreciate modestly and gradually against a basket of currencies, although it would reduce the slope of appreciation.

The city state's currency has been suffering from a sluggish economy and slowing inflation. Some investors had already expected the central bank to ease monetary policy in the upcoming review in April. The Singapore dollar was the second-worst performing emerging Asian currency after the ringgit so far this year with a 1.9% depreciation, according to Thomson Reuters data.

Ringgit
The ringgit fell, tracking the weakness in the Singapore dollar. The Malaysian currency found some relief as investors sold the Singapore dollar against the ringgit.

Still, the ringgit stayed under pressure on risks of a central bank rate cut later in the day. Bank Negara Malaysia is expected to keep its key interest rate unchanged at 3.25%, as the country's economy remains at risk from a slump in oil prices and a weakened currency, a Reuters poll showed.

Baht
The baht fell as offshore funds and local traders, betting a rate cut later in the day. "What MAS did today may put pressure on the Bank of Thailand," said a Thai bank currency trader in Bangkok. In a Reuters survey on Monday, the Bank of Thailand was expected to leave its policy interest rate steady at 2%. — Reuters