Why did the Swap Offer Rate Fall below Zero for the First Time in almost Nine Years?


Singapore’s one-month swap offer rate has fallen below zero for the first time since August 2011. This comes after the Monetary Authority of Singapore (MAS) eased monetary policy to cope with the impact of the novel coronavirus pandemic. Why did this happen and what does it mean for Singaporeans?

What is the Swap Offer Rate?

The Swap Offer Rate is one of the key benchmarks used by banks in Singapore and is the cost to borrow the Singapore dollar for dollar investors. It is largely determined by the exchange rate between the Singapore dollar and the US dollar.

Why did the Swap Offer Rate go Negative?

As Singapore is expected to enter a recession this year with GDP growth projected at -4 to -1%, the MAS has adopted a zero percent per annum rate of appreciation of the policy band starting at the prevailing level of the $$NEER. This means that the MAS will flatten the slope of the $$NEER.

What is $$NEER?

The $$NEER is the Singapore Dollar Nominal Effective Exchange Rate and refers to the exchange rate of the Singapore dollar against a trade-weighted basket of currencies from Singapore’s major trading partners. 

Unlike other countries that use the interest rate as their monetary policy tool, the MAS uses the exchange rate to ensure that the prices of goods and services remain stable. This is largely due to Singapore’s small and open economy where the country’s exports of goods and services account for more than 300% of her Gross Domestic Product (GDP).

What is the effect on Singaporeans?

In a typical situation, a weaker Singapore dollar is expected to help boost Singapore’s exports, making them more attractive to the overseas markets. However, in view of the pandemic, global demand for exports has dropped significantly. While Singapore may have weakened its currency, currencies across the globe are also weakening, putting the Singapore dollar at a strong position against many other currencies.

As such, the monetary policy is very focused on limiting the damage to the economy and, in particular, not affecting the long-term capability of our workers. Adjustments to the $$NEER are part of efforts to to manage the Singapore dollar and stabilise prices. This reflects the primary role of fiscal policy in mitigating the economic impact of COVID-19.