Singapore dollar gains after surprise c.bank tightening; Asia stocks down

Summary Singapore to slightly raise rate of appreciation of policy band

South Korea leads Asia stock sell-off

Indonesia, Malaysia, Singapore, Taiwan stocks down more than 1%

Jan 25 (Reuters) – Singapore’s dollar gained after the central bank tightened policy on Tuesday in a surprise move as inflation risks rise, while South Korea led Asia’s emerging stock markets sharply lower with investors bracing for U.S. rate hikes.

Amid growing price pressures, central banks worldwide are beginning to either tighten policy or signalling a shift may be coming, leading to sharp falls in global stocks in recent days.

Singapore’s central bank tightened its monetary policy settings in its first out-of-cycle move in seven years, a day after the city-state reported core inflation at an eight-year high and said it was reviewing its official forecasts. read more

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The Monetary Authority of Singapore (MAS) last surprised with an off-cycle move in January 2015 when it eased its policy after a collapse in global oil prices.

“We think the added uplift to inflation from a domestic outbreak of Omicron will force the MAS to tighten again this year,” Alex Holmes, an emerging Asia economist at Capital Economics, said.

The Singapore dollar edged up 0.2%, while most other regional currencies were flat to slightly lower.

“A steeper slope will provide the SGD more resilience against a rising USD when the Fed starts its hike cycle,” DBS said in a note, referring to the U.S. Federal Reserve.

Last week, Indonesia’s central bank also surprised markets with 300 points of staggered hikes in the reserve requirement ratio for banks, while in Malaysia, the central bank omitted a line that some economists engendered as a potential shift in stance later this year. read more

All eyes are on the Fed, which concludes a two-day meeting on Wednesday, with investors waiting for any hint on the timing of interest rate hikes and the pace of the central bank draining its massive balance sheet.

Aside from worries that U.S. rate hikes may lead to capital outflows from Asia’s riskier emerging markets, investors are also weighing a potential invasion of Ukraine by Russia and rising tensions with the West that may lead to higher oil and gas prices and further contribute to global price pressures.

“The volatility seems to have weighed on Asian equities this morning,” Maybank analysts said, referring to rising tensions and volatile moves on Wall Street overnight. U.S. stock futures are down in Asia trade.

Stock markets in Indonesia (.JKSE), Malaysia (.KLSE), Singapore (.STI) and Taiwan (.TWII) all fell more than 1%, while in South Korea (.KS11) they fell 2.6%.

Tech-heavy South Korean equities have slumped around 8% in the last two weeks. Data on Tuesday also showed its economy expanded at the fastest pace in 11 years in 2021, thanks to an export boom. read more

HIGHLIGHTS:

** Indonesian 10-year benchmark yields are down 0.6 basis points at 6.411%​​

** Yangzijiang Shipbuilding Holdings Ltd (YAZG.SI), Keppel DC REIT (KEPE.SI) and Genting Singapore Ltd (GENS.SI) lead losses in Singapore

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Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Himani Sarkar

Our Standards: The Thomson Reuters Trust Principles.