SINGAPORE: Singapore's dollar was on track for its worst day in more than eight months on Thursday, leading losses among emerging Asian currencies, after the city state's central bank unexpectedly eased its exchange-rate based monetary policy.
The Monetary Authority of Singapore said it will set the rate of appreciation of the Singapore dollar's nominal effective exchange rate (NEER) policy band at zero percent, starting on Thursday, shifting from its previous policy stance of a "modest and gradual" appreciation of the Singapore dollar.
The MAS last shifted from "modest and gradual" appreciation to a zero percent appreciation stance in October 2008.
The Singapore dollar dropped as much as 0.9 percent to 1.3636 versus the US dollar, its weakest since March 29. If maintained, the daily depreciation would mark the biggest slide since Aug. 11, according to Thomson Reuters data.
"The MAS surprised markets by moving to a zero appreciation slope," analysts for Nomura said in a research note. "We see some further risk of depreciation in the near term, not so much from this mild shift in policy (from +0.5 percent to 0 percent annualised appreciation), but from the risk that expectations of further easing this year could increase."
The city-state's currency has been the third-best performing emerging Asian currency so far this year, partially amid expectations that the central bank would keep the policy unchanged this week.
The Singapore dollar's weakness was exacerbated as the US dollar rose broadly, posting its biggest one-day gain in more than a month against a basket of six major currencies.
"The impact we think will likely be transient. However, because of the slightly more supported broad USD in the last 36 hours, the USD/SGD may be incrementally more buoyant in the short term," said Emmanuel Ng, a foreign exchange strategist with OCBC Bank in Singapore.
Other emerging Asian currencies also fell.
The South Korean won earlier lost more than 1 percent. Currency traders largely ignored the ruling South Korean party's loss in a parliamentary election on Wednesday.
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