Singapore will decide to strengthen its currency at its April policy review to curb inflation after the economy grew at a record pace in 2010, according to a Bloomberg News survey.
The Monetary Authority of Singapore will revalue the local dollar against its trade-weighted basket or let it appreciate faster, according to 11 of 13 economists polled by Bloomberg News. Five said a one-off revaluation was most likely, three forecast quicker gains and three were unsure of the method. Only two predicted no change to the central bank’s current policy of “modest and gradual appreciation.”
Singapore’s economy expanded 14.5 percent in 2010, the fastest pace since independence in 1965, the government said in a statement on Feb. 17, adding there was “some upside potential” to its 4 percent to 6 percent growth forecast this year. It predicted 2011 inflation of as high as 4 percent, compared with an earlier forecast of no more than 3 percent.
“The guidance is clear that there are increasing concerns about wage-price pressures and inflation,” said Wai Ho Leong, a Singapore-based regional economist at Barclays Plc, the most- accurate forecaster of Asian currencies based on data compiled by Bloomberg. “They’ll probably tighten again in April. They may steepen the slope of the band to allow up to 4 percent appreciation from the current 3 percent.”
Local Dollar Rallies
Singapore’s dollar was little changed at S$1.2758 versus its U.S. counterpart as of 7:26 a.m. local time, bringing its gain this year to 0.5 percent, according to data compiled by Bloomberg. It reached S$1.2695 on Feb. 3, the strongest level since at least 1981 when Bloomberg began tracking the data. The currency rallied 9.3 percent last year, its best performance since 1994, after the central bank unexpectedly tightened policy at both of its biannual reviews.
The local dollar will strengthen 1.3 percent by midyear to S$1.26 and 4.6 percent by year-end to S$1.22, according to the median estimates of the 13 economists.
The monetary authority uses the exchange rate rather than interest rates 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 centre of the band. A steeper slope allows faster appreciation over time, while lifting band’s midpoint amounts to a one-off revaluation. Policy makers revalued the currency last April and steepened the slope in October. MAS has yet to set a date for the meeting.
‘See No Change’
Consumer prices gained 4.6 percent in December from a year earlier, the fastest pace in two years. Prices may rise at a pace of as much as 6 percent in the first few months of 2011 and “thereafter, inflation should moderate, especially in the second half of the year,” the Ministry of Trade and Industry said in a statement on Feb. 17.
Rising commodity prices may slow Asian growth if governments are forced to tighten domestic policies to control inflation, Finance Minister Tharman Shanmugaratnam said in his budget speech on Feb. 18. Singapore’s preferred method is to seek to moderate medium-term inflationary pressures through its currency, he added.
“We see no change in April as the monetary authority expects growth to slow from last year’s red-hot levels and they see inflation peaking in the second quarter,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore, the top forecaster of the local dollar.
There is no need “at this stage” to revise the monetary policy stance that was set in October, central bank Deputy Managing Director Ong Chong Tee said on Feb. 17. Still, there is “some risk” to the inflation forecast and policy makers will monitor price and cost developments “closely,” he said.
Inflation Risks Higher
“We think they will tighten again in April as inflation risks are now higher than growth risks,” said Thomas Harr, the Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc, the second-best forecaster of Singapore’s dollar in the past 18 months. “They’ll probably do a one-off 2 percent revaluation by re-centering the band.”
Leong Sook Mei, a Singapore-based currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., also said a one-off revaluation was most likely.
“There’s a 75 percent chance of a tightening, though it’s not a done deal as the authority’s policy is supposedly forward- looking and they do see inflation coming off and growth slowing,” she said. “Flexibility is the name of the game.”
Firm April Policy SGD by SGD by
Mid-2011 End-2011
Stanchart Tighten Re-center 1.30 1.21
ING Tighten Re-center 1.2560 1.2040
Barclays Tighten Steepen 1.27 1.26
BOTM-UFJ Tighten Steepen 1.26 1.23
Citi Tighten - - -
BNP Unchanged - 1.23 1.21
Deutsche Unchanged - 1.25 1.22
Westpac Tighten Steepen 1.25 1.22
Credit Tighten Re-center 1.27 1.26
Agricole
Forecast Tighten - 1.30 1.25
DBS Tighten Re-center 1.26 1.22
OCBC Tighten Re-center - 1.2555
Goldman Tighten - 1.24 1.21
Median Tighten - 1.26 1.22
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