Monetary Authority of Singapore Declines Heavy Intervention in FX Markets

The Monetary Authority of Singapore (MAS) has shot down all rumors, reiterating that it was not intervening to support the Singapore dollar (SGD), amidst mounting accusations pointing to the country’s official foreign reserves (OFR), according to a MAS statement.

Indeed, a number of reports have recently surfaced, citing declines in Singapore’s OFR and MAS’ FX Swaps since the middle of 2014. Typically, where there is smoke there is usually fire, and critics and pundits alike have deduced that this was an indication of heavy intervention by MAS to support the Singapore Dollar Nominal Effective Exchange Rate (S$NEER).

As a result, MAS has released a detailed statement, defining the recent changes in an attempt to squelch any and all speculation of intervention. First and foremost, MAS attributed the decline in the USD value of the OFR in the last nine months to currency translation effects arising from the broad-based appreciation of the USD against the other major currencies in the OFR.

In addition, the stock of FX swaps declined as MAS fostered a continued reliance on MAS bills in its money market operations, whilst most of the proceeds from the maturing swaps were transferred to the Government for management by GIC over a longer investment horizon. MAS reiterated that this was a transfer of assets, and not a reduction in Singapore’s overall reserves.

On OFR and Currency Translation Effects

Singapore’s OFR declined by $29 billion from June 2014 to $249 billion as at end-March 2015. However, the monetary authority points to an increase of $105 billion over the preceding five years. Moreover, MAS stated that the recent decline in OFR was primarily due to currency translation effects, rather than its intervention operations, which ran counter to many recent reports. As a result, this was reflective in the sharp appreciation of the USD against the other major foreign currencies in the OFR.

Finally, MAS also noted that roughly 67% of the OFR was denominated into the major G4 currencies, i.e. USD, EUR, GBP and JPY, with no single currency allocation making up more than 33% of the composition.

On FX Swaps and Transfers

Dating back to 2009-2011, MAS had accumulated a substantial amount of FX swaps when there were strong capital inflows to Singapore at a time when there was exceptional monetary easing in the major advanced economies, e.g. Quantitative Easing (QE) in the United States by the Federal Reserve.