Singapore dollar strengthened

The Monetary Authority of Singapore (MAS) released its half-yearly monetary policy statement today.

Gross Domestic Product

In the report, it was mentioned that Singapore’s Gross Domestic Product (GDP) expanded by 9.9% on a quarter-on-quarter seasonally adjusted annualised basis in Quarter 1 2012, following the 2.5% contraction in the preceding quarter (based in advance estimate released by Ministry of Trade & Industry). This was an improvement due mainly to better performance from the manufacturing sector over the previous quarter. On a year-to-year basis, GDP grew at 1.6% (3.6% for previous quarter).

There is however no change to GDP forecast for 2012, ie 1.0 – 3.0%.

New Inflation Forecast

Because inflation as measured by Consumer Price Index (CPI) had remained elevated since October 2011 above expectation, MAS revised new Inflation numbers for this year. It now expects CPI-All Items inflation to be 3.5 – 4.5%, an increase of one percentage point. MAS Core inflation (excluding private road transport and accommodation costs) is now raised to 2.5 – 3% with same one percentage point increase from previous forecast.

Monetary Policy

Since core inflation remains elevated, MAS decided to tighten its monetary policy to moderate inflation in this April policy statement.

“MAS will therefore continue with the policy of a modest and gradual appreciation of the S$NEER policy band.  The slope will be increased slightly, and there will be no change to the level at which the band is centred.  MAS is also restoring a narrower policy band.  This policy stance will help anchor inflation expectations, ensure medium-term price stability, and keep growth on a sustainable path.” (Source: MAS Monetary Policy Statement)

MAS is therefore allowing Singapore dollar to appreciate more than that set in the previous October 2011 Monetary Policy Statement (on a gradual basis).

Impact on Foreign Exchange Rates

With the announcement of the MAS policy statement this morning, I see Singapore dollar strengthened over almost all major currencies today.

The following exchange rates were taken at 10.32 pm tonight. Figures in brackets show the percentage drop for today.

US dollar – USD/SGD 1.247 (-0.44%)
Australian dollar – AUD/SGD 1.294 (-1.03%)
Euro – EUR/SGD 1.632 (-1.22%)
Sterling Pound – GBP/SGD 1.980 (-0.92%)
Japanese Yen – JPY/SGD 0.015 (-0.57%)
Swiss Franc – CHF/SGD 1.357 (-1.26%)
Chinese Yuan – CNY/SGD 0.198 (-0.28%)

These percentage declines in foreign currencies against Singapore dollar (ie Singapore dollar appreciates) are significant.

Investors invested in foreign currencies (before today) will find their values of investment declined in Singapore dollar term. This spells bad news on this Friday the 13th.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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