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NEWS UPDATES Asean Affairs  16 October 2010

Singapore money policy tightened

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Taking global markets by surprise, the Monetary Authority of Singapore (MAS) tightened its monetary policy yesterday - signaling its intent to combat inflation even as the Republic's economic growth slows.

The move, which allayed the fears of business owners and consumers about rising costs, sent the Singapore dollar soaring to a record high against the greenback - it also sent the US dollar tumbling against a wide range of currencies.

The US dollar was at 1.2953 against the Singapore dollar and was being quoted at a record low of 1.2893 shortly after MAS' announcement.

While some experts worldwide expressed surprise at the global impact of MAS' move, a Barclays Capital report pointed out that Singapore was "seen as a barometer of Asian economic growth" and investors may read MAS' move "as a sign of greater willingness" on the part of other central banks in the Asian emerging economies to allow the US dollar to further depreciate.

In its half-yearly policy review yesterday, MAS announced that in its bid to head off inflation, the slope of its policy band "will be increased slightly, with no change to the level at which the band is centred". The policy band will also be "widened slightly in view of the volatility across international financial markets" - the last time it did so was in September 2001, after 911.

Domestic inflation "rose significantly" from 0.9 per cent in the first quarter to 3.2 per cent in July and August, the MAS noted.

With the economy already operating at close to full employment, coupled with higher external commodity prices, such costs could be passed on to consumers.

This, MAS said, may result in inflation hitting around 4 per cent by the end of this year and stay high in the first half of 2011.

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