Singapore’s central bank tightened its monetary policy today by recentering its Singapore dollar policy band upwards and by shifting its policy to modest and gradual appreciation for the currency.
The decision came as the economy expanded a stronger-than-expected 13.1 per cent in the first quarter of 2010 from a year earlier, preliminary government data showed on Wednesday, driven by stronger manufacturing output.
Key points:
- The central bank tightened policy by allowing a stronger Singapore dollar, saying the Singapore economy has rebounded from the downturn while inflationary pressures were likely to pick up, after easing policy a year ago to support the economy.
- Gross domestic product in January-March rose 32.1 per cent from the previous quarter on an annualised and seasonally adjusted basis, against market expectations of a 18.4 percent rise.
Commentary:
Robert Prior- Wandesforde, economist at HSBC
“Clearly everyone was expecting a strong number, and the MAS had no choice but to tighten policy. By Singapore standards a significant change, fully justified by this enormous GDP number, on the fact that recovery is not only strong but sustainable.”
Market reaction:
- The Singapore dollar was quoted at 1.3816/29 per US dollar, compared to levels of 1.3916 just before the policy announcement.
- The statement was released before the benchmark FTSE ST Index started trading. It ended Tuesday’s session 0.19 per cent higher/lower at 2,971.60 points.
- To view the full statements, please go to the Web site of the Monetary Authority of Singapore and the Ministry of Trade and Industry.
Context:
* The Monetary Authority of Singapore sets policy by managing the Singapore dollar’s nominal effective exchange rate — its relative value compared with a basket of currencies of trading partners — instead of setting interest rates.
* The band and the basket of currencies are kept secret, but big banks and investors have models that mirror the system.
* Singapore’s economy has rebounded from its worst ever recession last year, and the government now expects gross domestic product to grow by 7-9 per cent this year, after GDP shrank 2.0 per cent in 2009. —
My Take:
Well, what do you know? Singapore is doing very well! Wither Malaysia?
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