Forex Blog: Currency Trading News & Analysis.

April 12th 2005

Singapore to appreciate currency

The Monetary Authority of Singapore announced today that it will allow the appreciation of its domestic currency, in order to keep pace with inflation. Somewhat surprisingly, Singapore also lowered its annual forecasts for economic growth and inflation, which has left many investors confused. Singapore currently maintains the value of its currency against a trade-weighted basket of foreign currencies. It uses this exchange rate regime to conduct monetary policy. The central bank’s decision to allow the dollar to appreciate is equivalent to a raising  interest rates. Whereas a typical central bank would simply raise interest rates to manage inflation, Singapore appreciates its currency. Singapore’s central bank has been fighting to keep its dollar down, in the wake of a weaker USD and a massive inflow of foreign capital. It has finally capitulated, and will allow the dollar to appreciate. If Singapore’s economy, however, continues to sputter, the central bank may soon move to check the dollar’s appreciation. The Financial Times reports:

However MAS said “underlying growth support for the Singapore economy remains intact,” predicting a modest rebound in demand for electronics, the city-state’s biggest manufacturer, in the second half of the year. It predicted that economic growth this year will likely come in at the low end of the government’s 3 to 5 per cent forecast.

Read More: Singapore to let dollar rise

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Posted by Adam Kritzer | in Exotic Currencies | No Comments »

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