Singapore changes monetary policy, dollar falls to new low
Singapore changes monetary policy, dollar falls to new low
SINGAPORE (AP): In a surprise move designed to combat a sharp
recession, Singapore's central bank said Thursday it has
abandoned its policy of promoting slow appreciation of the
island-state's currency.
A day after the government said it would announce a package of
measures within weeks to bolster the economy, the Monetary
Authority of Singapore - the nation's de facto central bank -
surprised the currency market by shifting to a neutral exchange
rate policy from a previous tightening stance.
"This caught a lot of us by surprise, but they (MAS) had no
choice," said Jimmy Koh, head of treasury research at United
Overseas Bank Ltd. "The economy was falling off the cliff."
Julian Jessop, an economist with Standard Chartered Bank, said
a weaker Singapore dollar could affect foreign exchange markets
throughout the region. However, the move wasn't "shocking" given
the bleak economic data issued this week, he said.
The Singapore government released figures Tuesday that showed
the country had fallen into a recession after two back-to-back
quarters of gross domestic product contraction. It also slashed
its 2001 economic growth forecast to 0.5 percent to 1.5 percent
from an earlier forecast of 3.5 percent to 5.5 percent.
The new exchange rate policy could be a double edged sword for
Singapore, promoting its exports by making its products cheaper
but at the same time raising the costs of many imports.
On Wednesday, the government said that it would announce
package of measures in Parliament - which is due to reconvene on
July 25 - aimed at cutting business costs and curbing rising
unemployment.
Singapore is a wealthy Southeast Asian nation with no natural
resources. It depends on imports for food and most goods, and its
economy relies heavily on the export of electronics.
The new MAS policy will allow the Singapore dollar to
fluctuate within set boundaries, but the bank will "intervene to
curtail excessive volatility" and to "prevent the currency from
breaching the upper or lower bounds when necessary," said Tharman
Shanmugaratnam, MAS managing director.
"Against the backdrop of a weaker external economic
environment and a more protracted global electronics downturn,
near-term growth prospects for the Singapore economy have turned
significantly weaker while inflationary pressures are subsiding,"
said Shanmugaratnam.
Shanmugaratnam said the fluctuations in the exchange rate will
mean that some goods will be more expensive.
Since January, the central bank had promoted a gradual, modest
appreciation of the Singapore dollar on a trade weighted basis.
The policy was aimed at capping medium-term inflationary
pressures while supporting economic activity as growth began to
moderate.
Shanmugaratnam said he did not believe the central bank would
have to modify its new policy before the end of the year.
"The slowdown reflects a decline in demand, not an erosion of
competitiveness. There is no reason for any persistent weakening
of the Singapore dollar," said Shanmugaratnam.