ASEAN KEY DESTINATIONS
Dollars flood Singapore
Singapore is attracting an unwelcome flood of US dollars that has caused a key interest rate to turn negative, complicating efforts to dampen inflation and prompting speculation the central bank will tweak its policy to slow the rapid rise in the country's currency.
While Singapore prides itself on having a highly globalised and open economy, the stream of investors seeking refuge from international market turmoil in recent weeks could fuel price pressures on the tiny island, adding to fears of a potential property bubble even as the economy shows signs of slowing.
That could persuade the city-state's central bank to reconsider its policy on allowing further appreciation in the local currency.
Authorities have allowed the Singapore dollar to gain 6.5% against the US dollar so far this year, the most among Asian currencies, to curb imported inflation and as investors shy away from the United States and Europe where governments are struggling to resolve debt issues.
As global markets plunged last week, the Singapore dollar swap offer rate (SOR) fell below zero for the first time due to inflows into the Singapore dollar. The rate reflects lending costs as well as the expected forward exchange rate between the US dollar and Singapore currency.
The three-month SOR was fixed at minus 0.06 on Tuesday, widening from Monday's minus 0.01. It fell below zero yesterday.
Singapore's current policy stance is to allow a gradual appreciation of the local dollar against a basket of currencies to curb price pressures.
That stance, however, has attracted even more safe-haven inflows into the AAA-rated city-state, threatening to magnify existing price pressures and hurting local banks by reducing their already-low loan margins.
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