Devaluation of S$ as possible Monetary Tool?

[londontrader]

Continued..........

<< 7) It seems to me that MAS has started to sell S$ in the currency market recently, thus resulting in the recent depreciation of S$. >>

The SGD has depreciated recently (your turning point being Jul 08) because of:

a. The flow of increasingly negative economic data from Singapore

b. The more accommodative MAS policy stance ie. zero appreciation

c. The recent (temporary!) turnaround in the USD for quite a few reasons (which is another long story)

d. Possible intervention by the MAS (only my guess) to nudge the SGD along. They could be setting the stage for a policy change in April.

<< 8) You are right in the sense that such depreciation effort may be negated by regional or even global reactions in using the same mindset. >>

That's why devaluation is a very dangerous game that I don't think the PAP is ready to play. Sparking a "race to the bottom" ie. successive competitive devaluations during a global recession is a recipe for a global deflation!

<< 9) In my view, it is not easy to devalue S$ in view of the large amount of money that US is printing right now. Even maintaining at the current exchange rate would require MAS to print and sell lots of S$. In order to devalue against US$, it would mean a DOUBLE selling of S$ if MAS wants to achieve the desired level of forex depreciation. >>

Well, I am near term bullish on the USD and see opportunites for a some technical trading. Do agree with you that the USD is doomed in the medium to long term.

Would remind you that the MAS doesn't seek to maintain the SGD at any absolute level or band. The peg is to a trade weighted basket of currencies. Remember that SGD = BBC ie, Basket, Band, Crawl

The MAS could engineer a sharp devaluation if ordered to. It would just be a very costly exercise in more ways than one.

<< 10) I do however agree with you that MAS may just announce a re-centering of the band. But how could it provide a credible forex intervention to achieve that level is something yet to be seen. >>

Quite straightforward:

They try to let the market do as much of the work as possible. That means that they tend to re-centre at the prevailing mkt rate or close to. I suspect they usually prep the mkt ie. nudge things along in the run up to a policy change. The implication is that large sudden changes are a no no!

<< 11) There are a lot of other implications to the lives of Singaporeans. It would actually mean a defacto wage reduction for workers with respect to their purchasing power. But such wage reduction does not help local companies, only help those MNCs who have more external exposures. And yes, it may create a stagflation locally if the effect of depreciation does not really help to increase growth. >>

See what I mean by heavy political and social costs!
Don't think the PAP are too keen to play this kind of game.
So they come up with JOBS CREDIT, an attempt to balance these costs

<< It is always nice to hear your views on economic and finance matters. >>

Thank you

You like to make provocative statements that incite quite emotional responses from certain characters here!

I like provocative statements because they make people think carefully about what really matters.

Cheers

 

[Goh Meng Seng]

Continued..........

<< It is always nice to hear your views on economic and finance matters. >>

Thank you

You like to make provocative statements that incite quite emotional responses from certain characters here!

I like provocative statements because they make people think carefully about what really matters.

Cheers

Dear Londontrader,

Pardon me for my provocative statements as political blood keeps flowing through my head.

You have an interesting perspective overall and in general, I do agree with you that a sharp depreciation of S$ would be a silly thing to do. Although my school mate did provide an interesting scenario to me that day, I am too skeptical about it. However, with the constant depreciation of S$ as against HK$, RMB and US$ over the past few months, it really makes me wonder whether there is a REAL intent on MAS' part in shifting the band in the near future.

If this is so, naturally the market will definitely move accordingly. I, for one, am moving my money into other currencies in view of the relative weakness of S$. The problem is, the market will react to information whether it is justified or truth or not is totally another matter.

Goh Meng Seng