Patricia Lui & Lilian Karunungan
Singapore’s central bank will favor a stronger currency by October to curb inflation and catch up with regional peers in withdrawing economic stimulus, a survey of economists showed.
The currency has risen 0.5 percent so far this year, lagging behind a 7 percent gain in Malaysia’s ringgit and a 5 percent advance in India’s rupee. Consumer prices rose 1 percent in February from a year earlier, the fastest pace since March 2009, compared with a 0.2 percent increase in January, official data show.
“MAS doesn’t want to be seen as being behind the curve,” said Sebastien Barbe, head of emerging-market research at Credit Agricole CIB in Hong Kong. “The central bank wants to manage inflation expectations.”
Policy makers from India to China have begun withdrawing monetary stimulus this year, seeking to check asset-price bubbles as the region leads global growth. China has twice ordered banks to increase the share of their assets held in reserve. India increased interest rates last month for the first time in almost two years, while Australia’s central bank has raised borrowing costs in five out of the past six meetings.
Singapore’s central bank opted for a de-facto devaluation of its currency in April last year to reverse a collapse in exports. It maintained a zero-appreciation of the currency at its October review and said on Feb. 19 that the stance remained appropriate. It has yet to set a date for this month’s meeting.
Gross domestic product will expand by as much as 6.5 percent in 2010, the government said in February. The economy grew 4 percent in the fourth quarter from the year-earlier period, the fastest pace since March 2008.
The central bank is concerned that the economic recoveries in the city’s major markets of the U.S., Japan and the euro zone have yet to take root, said Alvin Liew, an economist at Standard Chartered Plc in Singapore. Developed countries will grow 2.1 percent in 2010 after contracting 3.2 percent last year, according to International Monetary Fund forecasts. The U.S. and Europe together buy about a fourth of Singapore’s exports.
“We expect the MAS to maintain its neutral currency policy stance in April as inflation is still benign,” said Liew. “The key export markets in the G-3 economies may remain lackluster.”
“The reason we see a move in October rather than April is a Fed hike and a resumption of the Chinese yuan appreciation are more likely in the second half than the first half,” said Philip Wee, a senior currency economist at DBS Group Holdings Ltd., Singapore’s largest bank.