SGD: Energy shock keeps MAS path in play – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong observe that Asian FX, including the Singapore Dollar, still vulnerable to Oil-driven inflation and growth risks despite the IEA’s reserve release. They note MAS is unlikely to react prematurely but a sustained rise in energy prices could reduce policy patience.

Energy-driven inflation risks for Singapore

"While IEA’s decision to release 400mn barrels from oil reserves intended to contain oil price spike is a positive step, Iran’s threat of USD200/bbl may still overwhelm in the interim, as it would have ramifications on inflation and growth outlook. In addition, release of oil reserves take time to reach open market due to logistical and shipping constraints."

"This means markets may still face a short-term squeeze, especially if supply disruptions coincide with existing production cuts. In that sense, the reserve release may help to cap panic and smooth volatility, but it does not fully remove the risk of near-term oil price spikes. As such, Asian FX including SGD may still face pressure."

"Our economists estimate that a move in average crude oil prices from around USD63/bbl to USD92/bbl could raise 2026 headline inflation from roughly 1.3% to about 1.8% YoY. Market pricing has also begun to reflect tentative expectations of a tighter policy stance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)