ASEAN KEY DESTINATIONS
Singapore strengthens currency
Singapore’s central bank said it would “re-center the exchange rate policy band upwards” with economic growth expected to stay solid in the coming months.
“This policy will ensure price stability in the medium term while keeping growth on a sustainable path,” the Monetary Authority of Singapore said in its twice-yearly policy statement, which is released in April and October.
Economists said the upward re-centering of the policy band, known as the nominal effective exchange rate, meant an appreciation in the Singapore dollar.
The US dollar hit a record low of 1.2453 Singapore dollars after the early-morning announcement but recovered later to above 1.2510 Singapore dollars.
Instead of interest rates, Singapore conducts monetary policy via the local dollar, which is traded against a basket of currencies of its major trading partners within an undisclosed band.
A stronger local currency will mitigate the cost of imports as Singapore, a city-state, buys virtually all of its food and other needs from abroad.
“It’s a tightening of monetary policy with a one-off appreciation” of the Singapore dollar, said Song Seng Wun, a regional economist with CIMB Research. “It reflects the surprisingly strong growth of the economy.”
It was the third-straight move by the MAS to tighten monetary policy since April last year.
“Importantly, the big picture is still on inflation as what we’ve emphasized time and again in the past,” economists from Singapore’s DBS Bank said in a commentary. “Indeed, policy has to be pre-emptive and constantly ahead of the curve to be effective.”
DBS Bank said it expected Singapore’s 2011 inflation to exceed the 3 percent to 4 percent range projected by the MAS because of higher food and energy prices in the coming months.
China, India, Vietnam and the Philippines have all recently raised interest rates as energy and food prices soar.
The International Monetary Fund on Monday warned some Asian economies were showing signs of overheating and soaring food and energy prices threatened to stoke higher inflation.
It said in its latest global economic forecasts that “many emerging market economies will need to tighten policies to lower the risk of a hard landing.”
Singapore’s trade ministry on Thursday released advance estimates showing that gross domestic product grew an annual 8.5 percent in the first quarter.
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