Bloomberg News

Singapore Reduces Currency Band’s Slope on Slowing Inflation

October 13, 2011

(Updates with analyst comments from fifth paragraph.)

Oct. 14 (Bloomberg) -- Singapore will slow gains in the local currency because the deteriorating global economic outlook is expected to lead to a moderation in inflation, the central bank said today in its semi-annual exchange-rate review.

“Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore’s major trading partners have deteriorated,” the Monetary Authority of Singapore said in a statement.

The nation’s dollar climbed against all its most-traded peers and advanced 0.2 percent to S$1.2748 against its U.S. counterpart as of 9:01 a.m. Singapore time. It reached S$1.3199 on Oct. 4, the lowest level this year, and has gained 0.7 percent since Dec. 31.

Fourteen of 22 analysts in a Bloomberg News survey predicted the move. Seven forecast an easing of monetary conditions. One said the central bank will maintain the currency’s appreciation after re-centering the band upward at its last review in April to cool inflation.

“I think the policy is appropriate,” said Leif Eskesen, a Singapore-based economist at HSBC Holdings Plc. who was among the 14 forecasters predicting today’s decision. Inflation pressures have "proven higher and more sticky than originally anticipated. On the other hand, there is the expected slowdown in growth as a consequence of global economic headwinds.’’

Growth Outlook

Growth in the Singapore economy could fall below its potential rate of 3 percent to 5 percent, according to the central bank’s statement. The Southeast Asian nation’s gross domestic product may increase 5 percent this year, compared with an earlier forecast range of 5 percent to 6 percent, the trade ministry said in a separate report today.

“The decision was a bit disappointing because we had actually expected further easing by the central bank,” said Suresh Kumar Ramanathan, a currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur, who called for a re- centering of the currency band and a shift to a zero slope.

“They could miss the targets and there could be a sharper slowdown in the economy going forward,” he said.

The economy increased an annualized 1.3 percent last quarter from the previous three months, when it shrank a revised 6.3 percent. GDP expanded 5.9 percent from a year earlier, after rising 1 percent the previous quarter.

Regional Central Banks

Bank of Korea policy makers held their key rate in a unanimous decision yesterday. Central banks from Malaysia to Australia have refrained from raising their benchmarks rates in recent months as Europe’s debt crisis and a struggling U.S. economy dimmed the outlook for the region’s export-reliant nations.

Singapore’s monetary authority uses the exchange rate rather than borrowing costs to conduct monetary policy, adjusting the pace of appreciation or depreciation against an undisclosed trade-weighted band of currencies by changing the slope, width and center of the band.

A flatter slope allows slower appreciation or depreciation over time. The MAS tightened monetary conditions at each of its last three gatherings.

--Editors: Rocky Swift, Garfield Reynolds

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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