Revaluation of Singapore Dollar

April 14, 2010

Authorities at the Monetary Authority of Singapore (MAS) acted before their Beijing counterparts, releasing a statement today that re-centers the currency trading band on present market Singapore dollar levels, which had been above the prior level.  More importantly, the bias on that currency band will no longer be zero but rather modestly and gradually upward.  There had been no directional bias since October 2008.  The band applies to a trade-weighted exchange rate, and today’s announcement resulted in the Singapore dollar rising about 1% against its U.S. counterpart.  The prescribed band will retain the same width as before.

In making the change in exchange rate policy, officials said that economic activity had recovered more strongly than anticipated and was this year more entrenched than late last year.  Indeed, Singapore has moved past the recovery stage of the upswing and into the expansionary phase, meaning that GDP is greater than the prior cyclical peak.  Domestic CPI inflation has risen into the black, albeit only to about 0.6%, but such is projected to keep trending higher partly as a result of solid economic growth.  Officials expect underlying CPI inflation to run about 2%.

The main significance of a Singapore dollar revaluation is that it sets a precedent in the the most dynamic region of the world economy that may lead to appreciating trends in other Asian currencies, even the yen.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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