Singapore dollar rises to fresh 10-year high as MAS seen keeping monetary stance

SINGAPORE (Thomson Financial) - The Singapore dollar rose to a fresh 10-year high of 1.4764 against the US dollar on expectations that the Monetary Authority of Singapore (MAS) will maintain its policy of allowing the gradual and modest appreciation of the currency.

The MAS is expected to announce its semi-annual monetary policy statement next week.

At 2.40 pm, the Singapore dollar was trading at 1.4772 against the US dollar, after moving within the 1.4764-1.4870 range.

Foreign exchange policy is the MAS' main monetary tool as the pseudo central bank does not set domestic interest rates. The MAS manages the currency against a trade-weighted basket of currencies.

'We expect that the MAS will maintain the current policy of a gradual and modest appreciation

of the Singapore dollar, but we also expect this decision to be hotly debated due to strong economic growth, extremely tight labor market conditions, and a recent pickup in inflation,' JP Morgan economist

Matthew Hildebrand said in a note to clients.

Inflation rose to a 10-year high of 2.9 percent year-on-year in August due mainly to the increase in the goods and services tax to 7 percent from 5 percent that took effect in July and analysts are expecting inflation to rise above 3 percent in the coming months. Higher costs of transport, communications, food, housing, education and healthcare also pushed inflation higher in August.

The MAS needs to maintain its policy to stave off inflation, Credit Suisse currency strategist Charlie Lay said.

'The phase of the Singapore dollar's appreciation should help tackle rising inflation,' Lay said.

Against the US dollar, the Singapore dollar has appreciated by some 3.8 percent this year but Lay estimates that the local currency's nominal effective exchange rate is still 0.2 percent above the mid-point of the MAS trading band.

The MAS does not disclose the trading band or the components of the trade-weighted basket but Lay said the most heavily-weighted currencies in the basket are the Malaysian ringgit, China yuan, Japanese yen and the euro. Most of these currencies have appreciated against the weakening US dollar, with the euro soaring to new record levels last week.

In effect, the Singapore dollar has moved largely in line with other regional currencies but at the same time the currency has drawn strength from the continued inflow of liquidity in the domestic equity market, which is trading at new record levels, Lay said.

(1 US dollar = 1.47 Singapore dollars)

quote from vrz.
Source: http://www.forbes.com/markets/feeds/...fx4171383.html