Singapore May Weaken Currency in January on Yuan, Goldman Says
By Patricia Lui
Dec. 4 (Bloomberg) -- Singapore’s central bank may let its currency fall by 2.3 percent as early as January after Chinese policy makers moved to weaken the yuan this week, said Goldman Sachs Group Inc.
The yuan plunged 0.7 percent on the first day of this week, the most since the dollar peg was scrapped in July 2005, after the People’s Bank of China set the reference rate at the lowest level since August. That spurred speculation Beijing is weakening the yuan to aid exporters and counter a looming global recession.
Yuan’s lower reference rate fixing this week, “encouraged renewed rumblings of an inter-meeting move by the Monetary Authority of Singapore to weaken the Singapore dollar,” Fiona Lake, a Hong Kong-based analyst for Goldman, wrote yesterday in a note to clients. “Such a move is on the cards, possibly in January when we expect the central bank to move the band to allow for a weaker Singapore dollar.”
Singapore’s central bank, which conducts monetary policy by guiding the currency, moved to a “zero-percent appreciation” stance after the economy fell into its first recession since 2002. A weaker Singapore dollar would help electronics exporters such as Venture Corp. and Chartered Semiconductor Manufacturing Ltd. by making their products cheaper overseas. Central banks around the world are loosening monetary policy and cutting interest rates as a worsening global credit crisis saps growth.
The Monetary Authority of Singapore guides its currency within an undisclosed band based on a weighted basket of major trading partners’ currencies. Policy adjustments are made by changing the slope, width and center of the band. The MAS, which changed the currency policy at its last meeting on Oct. 10, is scheduled to hold its next semiannual policy meeting in April.
Depreciation
Singapore’s dollar traded at S$1.5247 to the U.S. dollar as of 12:30 p.m. local time, according to data compiled by Bloomberg. The currency fell to $1.5338 on Dec. 1, the lowest level since August 2007.
“We expect the Singapore dollar to trade at S$1.56 to the U.S. dollar as a result,” Lake wrote in the note, without giving a specific timeframe. That would imply a 2.3 percent depreciation.
The U.S. Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank have all reduced benchmark interest rates to combat recessions. Indonesia and Singapore are the only countries in Asia whose central banks haven’t eased monetary policy. Bank of Thailand shaved a record 100 basis points off benchmark policy rates yesterday.
China’s Policy
“The rise in dollar-yuan fixing has generated much attention in recent days,” Lake wrote. “It is unclear what signal the People’s Bank of China is trying to send. We need to watch the fixing closely. The slew of disappointing data out of China and the recent policy activism do lean towards the notion that dollar-yuan will move higher in the near term.”
Singapore’s recession will last about a year and it may take several years of slow growth before the economy returns to normal, Prime Minister Lee Hsien Loong said Nov. 17. The government expects exports to fall as much as 4 percent this year, the worst performance since 2001.
The government brought forward its annual budget announcement to January from February next year to help businesses and the individuals cope with the global downturn.
To contact the reporter on this story: Patricia Lui in Singapore at [email protected]
Last Updated: December 4
By Patricia Lui
Dec. 4 (Bloomberg) -- Singapore’s central bank may let its currency fall by 2.3 percent as early as January after Chinese policy makers moved to weaken the yuan this week, said Goldman Sachs Group Inc.
The yuan plunged 0.7 percent on the first day of this week, the most since the dollar peg was scrapped in July 2005, after the People’s Bank of China set the reference rate at the lowest level since August. That spurred speculation Beijing is weakening the yuan to aid exporters and counter a looming global recession.
Yuan’s lower reference rate fixing this week, “encouraged renewed rumblings of an inter-meeting move by the Monetary Authority of Singapore to weaken the Singapore dollar,” Fiona Lake, a Hong Kong-based analyst for Goldman, wrote yesterday in a note to clients. “Such a move is on the cards, possibly in January when we expect the central bank to move the band to allow for a weaker Singapore dollar.”
Singapore’s central bank, which conducts monetary policy by guiding the currency, moved to a “zero-percent appreciation” stance after the economy fell into its first recession since 2002. A weaker Singapore dollar would help electronics exporters such as Venture Corp. and Chartered Semiconductor Manufacturing Ltd. by making their products cheaper overseas. Central banks around the world are loosening monetary policy and cutting interest rates as a worsening global credit crisis saps growth.
The Monetary Authority of Singapore guides its currency within an undisclosed band based on a weighted basket of major trading partners’ currencies. Policy adjustments are made by changing the slope, width and center of the band. The MAS, which changed the currency policy at its last meeting on Oct. 10, is scheduled to hold its next semiannual policy meeting in April.
Depreciation
Singapore’s dollar traded at S$1.5247 to the U.S. dollar as of 12:30 p.m. local time, according to data compiled by Bloomberg. The currency fell to $1.5338 on Dec. 1, the lowest level since August 2007.
“We expect the Singapore dollar to trade at S$1.56 to the U.S. dollar as a result,” Lake wrote in the note, without giving a specific timeframe. That would imply a 2.3 percent depreciation.
The U.S. Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank have all reduced benchmark interest rates to combat recessions. Indonesia and Singapore are the only countries in Asia whose central banks haven’t eased monetary policy. Bank of Thailand shaved a record 100 basis points off benchmark policy rates yesterday.
China’s Policy
“The rise in dollar-yuan fixing has generated much attention in recent days,” Lake wrote. “It is unclear what signal the People’s Bank of China is trying to send. We need to watch the fixing closely. The slew of disappointing data out of China and the recent policy activism do lean towards the notion that dollar-yuan will move higher in the near term.”
Singapore’s recession will last about a year and it may take several years of slow growth before the economy returns to normal, Prime Minister Lee Hsien Loong said Nov. 17. The government expects exports to fall as much as 4 percent this year, the worst performance since 2001.
The government brought forward its annual budget announcement to January from February next year to help businesses and the individuals cope with the global downturn.
To contact the reporter on this story: Patricia Lui in Singapore at [email protected]
Last Updated: December 4
