April 13, 2011
Singapore MAS Allows Stronger Currency to Curb Inflation
Singapore will allow its currency to appreciate further to combat inflation after the economy grew faster than forecast in the first quarter, the central bank said in its semi-annual exchange-rate review.
The “policy will ensure price stability in the medium term while keeping growth on a sustainable path,” the Monetary Authority of Singapore said in a statement. There will be no change to the slope and width of the currency’s trading band, it said.
Ten out of 20 analysts in a Bloomberg News survey predicted the move. Six forecast no change from the “gradual appreciation” stance adopted in October, while four expected faster gains by steepening the band. “Inflation is still the focus,” Irvin Seah, an economist at DBS Group Holdings Ltd.
in Singapore, said before the policy announcement. “Policy has to be preemptive and constantly ahead of the curve to be effective.” Singapore’s dollar advanced 0.5 percent to S$1.25 against its U.S. counterpart as of 8:06 a.m. local time, according to data compiled by Bloomberg.
The currency reached S$1.2496, the strongest level since at least 1981, when Bloomberg began tracking the data. Gross domestic product rose at an annual rate of 23.5 percent last quarter from the previous three months, when it climbed 3.9 percent, the trade ministry said in a statement.
That compares with the 11.4 percent median estimate in a Bloomberg News survey of 14 economists. The monetary authority uses the exchange rate rather than interest rates to conduct policy, adjusting the pace of appreciation or depreciation against an undisclosed band of currencies.
A steeper slope allows faster appreciation over time, while lifting the band’s midpoint amounts to a one-off revaluation. Policy makers revalued the currency last April and steepened the slope in October.
The central bank said the Singapore dollar has been trading in the upper half of the existing trading band and that the centre of the new band will be below the current level against the basket of currencies.
“This is less aggressive than in April 2010,” when the policy band was re-centered at the prevailing exchange-rate level, Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong, wrote in a note. Even so, he predicted further strengthening in the currency.
http://www.bloomberg.com/news/2011-04-14/singapore-mas-allows-stronger-currency-to-curb-inflation-1-.html
