MAS to weaken S$

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April 14, 2009
MAS to weaken S$ <!--10 min-->
MAS eases monetary policy after record GDP fall. <!-- headline one : start --> <!-- headline one : end --> <!-- Author --> <!-- show image if available --> <table border="0" cellpadding="0" cellspacing="0" width="100%"> <tbody><tr></tr> <tr> </tr> <tr> </tr> <tr> </tr> <tr><td colspan="2" class="padlrt8 georgia11 darkgrey bold">By Robin Chan </td></tr> <tr valign="bottom"> <td width="330">

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To anticipate a record economic contraction this year, the Monetary Authority of Singapore will adopt a weaker Singapore dollar policy. -- PHOTO: SPH
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SINGAPORE central bank will adopt a weaker Singapore dollar policy as the government anticipates a record economic contraction this year.
In a widely anticipated move, the Monetary Authority of Singapore (MAS) on Tuesday said that it will re-centre the exchange rate policy band at the current level of the trade-weighted Singapore dollar nominal effective exchange rate (Neer).

Economists say this acts effectively as a one-off devaluation of the currency. The announcement came against a backdrop of mixed news for the Singapore economy, which the Government said could shrink by up to a record 9 per cent this year, but with exports showing some signs of life in March. The MAS lowered the band in which the Sing dollar trades against a basket of undisclosed currencies, a move analysts say implies a devaluation of between 1 and 3 per cent. It kept its policy stance neutral and the width of the band unchanged.

Unlike many other central banks, the MAS uses exchange rate policy rather than interest rate setting as its main monetary policy tool. But with markets anticipating a more drastic devaluation of the currency, the Sing dollar actually rallied on Tuesday, climbing to 1.496 against the US dollar from 1.517 after the announcement, before stabilising around 1.500 later in the day.

HSBC economist Robert Prior-Wandesforde said: 'The knee-jerk reaction to this less aggressive than expected statement, was for the US dollar to be sold off against the Sing dollar and for the (Sing dollar) to rally.' The MAS shifted to a neutral exchange rate policy stance last October for the first time since April 2004 when Singapore officially entered into a technical recession.

Amid falling exports and lower inflation, some economists expected the central bank to intervene before its policy meeting earlier this month, to make exports cheaper, but the MAS had resisted any interim moves. The last time the MAS lowered its band was in July 2003 during the Sars crisis.
In its statement on Tuesday, the MAS said: 'The domestic economy is likely to remain below potential till a decisive recovery is seen in Singapore's export markets...

The current level of the (Sing dollar band) is appropriate for maintaining domestic price stability over the medium term.' But the MAS also added that 'there is no reason for any undue weakening of the Singapore dollar' and that 'some moderation in the rate of decline in economic activity around the world is expected following the steep fall since the end of last year' even though 'considerable downside risks to growth remain'. OCBC economist Selena Ling said: 'This is probably to balance out any overly negative sentiment towards the (Sing dollar) following the 2009 official growth forecast downgrade.'
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Latest comments <table style="width: 100%;" cellpadding="0" cellspacing="2"><tbody><tr><td style="vertical-align: top;" align="left"><table style="width: 100%;" cellpadding="0" cellspacing="2"><tbody><tr><td style="vertical-align: top;" align="left"><table class="Post" style="width: 100%;" cellpadding="0" cellspacing="0"><tbody><tr><td style="vertical-align: top;" align="left">But the MAS also added that 'there is no reason for any undue weakening of the Singapore dollar' and that 'some moderation in the rate of decline in economic activity around the world is expected following the steep fall since the end of last year' even though 'considerable downside risks to growth remain'.

These remarks are totally way off and do not make any economic or business sense at all! Even my over 80 year-old
</td></tr><tr><td style="vertical-align: top;" align="left">Posted by: agan789 at Wed Apr 15 01:47:49 SGT 2009
</td></tr></tbody></table></td></tr></tbody></table></td></tr><tr><td style="vertical-align: top;" align="left"><table style="width: 100%;" cellpadding="0" cellspacing="2"><tbody><tr><td style="vertical-align: top;" align="left"><table class="AlternatePost" style="width: 100%;" cellpadding="0" cellspacing="0"><tbody><tr><td style="vertical-align: top;" align="left">Thanks to MAS's lack of urgency, we have already missed the window of opportunity to drastically reduce the degree of the adverse impact of this economic recession on Singapore.
MAS is definitely way behind the curve in dealing with the current dire economic situation. Sad to say that leadership is totally missing in this organization.

Concerned OverseasSingaporean
</td></tr><tr><td style="vertical-align: top;" align="left">Posted by: agan789 at Wed Apr 15 01:38:48 SGT 2009
</td></tr></tbody></table></td></tr></tbody></table></td></tr><tr><td style="vertical-align: top;" align="left"><table style="width: 100%;" cellpadding="0" cellspacing="2"><tbody><tr><td style="vertical-align: top;" align="left"><table class="Post" style="width: 100%;" cellpadding="0" cellspacing="0"><tbody><tr><td style="vertical-align: top;" align="left">someone said in a conference last year: ' don't overreact ' . . .
</td></tr><tr><td style="vertical-align: top;" align="left">Posted by: myotosan at Tue Apr 14 20:28:12 SGT 2009
</td></tr></tbody></table></td></tr></tbody></table></td></tr><tr><td style="vertical-align: top;" align="left"><table style="width: 100%;" cellpadding="0" cellspacing="2"><tbody><tr><td style="vertical-align: top;" align="left"><table class="AlternatePost" style="width: 100%;" cellpadding="0" cellspacing="0"><tbody><tr><td style="vertical-align: top;" align="left">The worst is yet to come but people are not realising that they start investing in condos, cars and etc..

When the time comes, I pray that they will not get into deep trouble. There is a lag time between USA and Singapore and when the time comes, we are going to be triple trouble ..and the foreigners will laugh at us.
</td></tr><tr><td style="vertical-align: top;" align="left">Posted by: csanson2004 at Tue Apr 14 20:00:04 SGT 2009
</td></tr></tbody></table></td></tr></tbody></table></td></tr><tr><td style="vertical-align: top;" align="left"><table style="width: 100%;" cellpadding="0" cellspacing="2"><tbody><tr><td style="vertical-align: top;" align="left"><table class="Post" style="width: 100%;" cellpadding="0" cellspacing="0"><tbody><tr><td style="vertical-align: top;" align="left">Not pessimistic.

It is looking at the deep dark pit positively.

What is meant by starting anew, starting afresh? Ponder.

If you grasp this, then you probably could understand the true nature of pessimitic and being positive.

For the first time, by respesting the Unseen first, one will grasp that nothing in the human world is bad, everything bad is for the better, for the good. This is positivity that few humans understand. Ponder carefully on this if you wish to know what it is.

If you find it a struggle, please bring it to your spiritual gurus or leaders and ask them..
</td></tr><tr><td style="vertical-align: top;" align="left">Posted by: NELNELNEL at Tue Apr 14 15:23:52 SGT 2009
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[tonychat]

so next time it will be 1 bath exchange for S$23.

 

[scoobyhoo]

1 baht exchange for S$23? they have found the solomon's treasure there?

 

[yinyang]

Reality's something else, viz a viz USD:

Published April 15, 2009, BT

MAS eases a notch, but Sing dollar ends higher
US$ finishes the day one per cent weaker at just above S$1.50

(SINGAPORE) Against a backdrop of falling prices and weaker growth both at home and abroad, the Monetary Authority of Singapore (MAS) yesterday re-centred its exchange rate policy band at current (weaker) levels, but retained its neutral policy stance, and left the width of its undisclosed trading bands unchanged.

The current level of the S$NEER is appropriate for maintaining domestic price stability over the medium term.

'In our assessment, the current level of the S$NEER is appropriate for maintaining domestic price stability over the medium term, taking into account the prospects for growth in the Singapore economy,' Singapore's central bank explained in its semi-annual monetary policy statement yesterday morning.

Singapore dollar strategists here estimate that the MAS move yesterday meant a de facto depreciation of something like 1.5 to 2 per cent for the S$NEER or trade-weighted Singapore dollar. Despite that, traders suggested that the weight of oversold positions going into the announcement saw the local currency strengthen - rather than weaken - versus the greenback.

Such positioning prior to the news was in turn based on an expectation in some quarters that the MAS could have announced a larger de facto depreciation of up to 4 per cent for the S$NEER.

JPM researchers, for example, explained that based on their estimates, oversold Singapore dollar positions before the announcement may have been as high as 2.9 times their annual average.

Shortly after the announcement, therefore, Reuters data recorded a two-month low of S$1.4953 in Asian currency trading - a good two cents lower than their morning high of S$1.5165 - and the trade-weighted Singapore dollar has reportedly moved into the stronger half of its new trading band. By the Asian close, the US dollar was trading just a shade above S$1.50, for a net loss of one per cent compared to Monday's Asian close.

Currency writers at Standard Chartered Bank and OCBC also pointed out that the last part of the MAS statement yesterday may have unnerved Singapore dollar bears too.

Singapore's central bank confirmed that the S$NEER has been trading in the lower half of its policy band over the past six months but added: 'The Singapore economy continues to be anchored by sound fundamentals and a resilient financial system. There is therefore no reason for any undue weakening of the Singapore dollar.'

Singapore's advance Q1 GDP report released yesterday certainly provided a good reason for the MAS to make a downward adjustment in its targeted S$NEER band.

It was estimated that the Singapore economy saw its worst-ever quarter on record in the first three months of 2009. And the official estimate for 2009 growth has now been lowered to -6 to -9 per cent.

But explaining why the MAS did not adjust the S$NEER more sharply downward, JP Morgan currency strategists suggested: 'A more radical policy action may have been viewed as counter-productive in terms of operational policy band management and currency reserves preservation, as it could beget yet further market expectations for S$NEER depreciation against the band.'

Looking further ahead, Stanchart predicted: 'We expect the S$NEER to move back to the weak half of the policy band over the next few months as Singapore goes through the deepest part of the current recession in H1 2009, and as the MAS is likely to maintain its neutral FX stance in October 2009.

'We therefore maintain our underweight short-term currency rating on the Singapore dollar, and forecast the US dollar at S$1.57, S$1.52 and S$1.48 at end-Q2 2009, Q3 2009 and Q4 2009.'

Likewise, Barclays Capital researchers suggested that the local economy may have bottomed out: 'Already, in emerging market Asia, there are signs that both exports and industrial production are starting to stabilise in March, as global trade finance conditions improve.'