The MAS dashboard focuses mainly on the Singapore nominal effective exchange rate (S$NEER). The Singapore exchange rate policy focuses on trade weighted exchange- Firstly, the value of SGD has to be measured against something. Rather than using one single currency as a benchmark, the MAS uses a basket of currencies of the major trading partners. It is trade weighted such that the currencies of our larger trading partners’ bears more weight and make up a more integral part of the index. This is reviewed periodically and the weight may be changed as out trade pattern changes. This means the SGD is measured against a basket of currencies and not one single currency.
Secondly, unlike most countries which adopt either a float or fixed exchange rate regime, Singapore’s policy is a hybrid of both. The Singapore dollar (SGD) is allowed to float freely, and the MAS will monitor the strength of the currency based on the S$NEER.
MAS focus on three aspects of the band
a) The slope of the band
b) The width of the band
c) The level the band is centred
Within the band, the SGD is subjected to day to day fluctuations just like any other currency. Businesses from overseas can buy or sell SGD to pay local companies for goods required. Institutions can buy or sell the currency to hedge against future movements. Speculators and traders can trade it freely in the Forex market. This freedom is essential for an open economy like ours to flourish.
However, once the SGD is deemed to be trading beyond the band, MAS will step in to buy or sell SGD to maintain its trajectory within the S$NEER band. What MAS is doing is essentially modulating the strength of the SGD against the $SNEER. Hence when the SGD is trading above the upper band the SGD will be sold to bring it below the upper bad and when SGD is trading below the lower band it will be bought to ensure it becomes higher than the lower band.
The band prevents the currency from becoming too strong, making exports more expensive to foreign countries or too weak, which will lead to decreasing purchasing power in the domestic country.
Hence we also have the main trading partners, the trade weights of each partner. The weights are assumed and determine the impact of each of the partners on the SNEER.
We have also visualised the GDP rate, inflation rate and the foreign reserves data, all 3 of which are impacted by the monetary policy.