Singapore unexpectedly revalued its currency after the government raised its estimate for economic growth and said inflation will accelerate faster than expected.
The Monetary Authority of Singapore, which uses the exchange rate rather than interest rates to conduct monetary policy, said it will seek a “modest and gradual appreciation” in the local dollar after shifting to a stronger range for currency fluctuations. The trade ministry said the economy will expand as much as 9 percent in 2010, compared with a previous outlook of 6.5 percent.
The Singapore dollar jumped the most in 10 months and currencies across Asia rallied as the decision showed regional governments are shifting to fighting inflation from stimulating growth as China drives a global economic recovery. Singapore property and car prices have climbed as the recovery boosts demand for Capitaland Ltd. apartments and Toyota Motor Corp. automobiles.
“This opens up the rest of Asia to allow further appreciation of their currencies, with the Korean won, Malaysian ringgit, Indian rupee and Taiwan dollar to lead the charge,” said Bernard Yeung, Hong Kong-based head of currency trading for Asia at National Australia Bank Ltd.
Singapore Dollar Rallies
Singapore’s dollar rose as much as 1 percent to S$1.3791 against the greenback, its biggest gain since June 2009 and the strongest level this year, according to data compiled by Bloomberg. It last traded at S$1.3799 as of 9 a.m. local time from S$1.3923 in New York yesterday.
The Monetary Authority of Singapore will “re-center the exchange-rate policy band at the prevailing level of the Singapore nominal effective exchange rate” and “shift the policy band from that of zero appreciation to one of modest and gradual appreciation,” according to a statement issued today following a semi-annual currency review. There will be no change to the width of the band.
The revaluation was forecast by only one of the 13 economists surveyed by Bloomberg News, while just six predicted favoring appreciation. The remainder saw no change in policy.
Gross domestic product rose an annualized 32.1 percent in the first quarter from the previous three months, after shrinking 2.8 percent in the October-to-December period, the trade ministry said today in its preliminary estimate. That was faster than the 18.4 percent median estimate of economists in a separate Bloomberg survey.
Inflation Target
Singapore revised its inflation target for this year to 2.5 percent to 3.5 percent, compared with an earlier projection of 2 percent to 3 percent. Consumer prices rose 1 percent in February from a year earlier, the fastest pace since March 2009, official data show.
“It was a quite hawkish stance from the MAS,” said Penn Nee Chow, an economist at United Overseas Bank Ltd., Singapore’s second-largest lender by market value. “According to our model, it looks to be a 0.6 percent appreciation of the Singapore dollar’s trade-weighted index.”
