S'pore monetary watchdog keeps close eye on its currency moves

S'pore monetary watchdog keeps close eye on its currency moves

SINGAPORE (Reuters): It would seem rather odd for a Southeast Asian central bank to be selling its own currency after more than a year of market turmoil and grinding currency depreciation.

But that is what foreign exchange traders say the Monetary Authority of Singapore (MAS) has been doing in the last couple of weeks.

They say local banks, which often act on behalf of the central bank, have been spotted buying the U.S. dollar each time the Singapore dollar shows signs of strengthening.

"Every time the dollar/Sing drops too much, the local banks are in to support it," a U.S. bank dealer said.

"Singapore needs to not have too strong a currency because of export competitiveness," she added.

But analysts say that although there are compelling arguments for a weaker Singapore dollar, including the oft-mentioned export competitiveness concern, the MAS is highly unlikely to actively depreciate the local currency.

"I don't buy the idea that the government is out there trying to depreciate the Singapore dollar to 1.80 or even 2.00 (to the U.S. dollar)," said Daniel Lian, head of Asian markets research at ANZ Investment Bank.

"If there's any activity (buying of dollar/Sing), the volume has been extremely light. I don't think they're in a mood to sharply depreciate the Sing dollar," he added.

An MAS spokesman said the bank does not comment on its intervention operations.

The Singapore dollar stood at around 1.72 to the U.S. dollar in late Asian trade on Friday. It has not strengthened above the 1.70 level since July 21.

Most analysts attributed the apparent MAS purchases of U.S. dollars to routine smoothing of sharp moves in the currency market or to the bank adjusting its own portfolio.

"The argument of trying to replenish reserves at the margin makes more sense because if you're trying to weaken the currency, you would typically catch it on a weakening trend," said Paul Alapat, senior economist at Indosuez W.I.Carr.

But he added that there was still no need for the government to push the Singapore dollar down given that Asian currencies remained in a downtrend overall.

ANZ's Lian said the 1.66-1.75 region would be a suitable trading range for the Singapore dollar unless other Asian currencies, including the yen, fell sharply.

But given the Singapore dollar's relative resilience compared with the currencies of its export rivals and a benign domestic inflation scenario, analysts say there is potential for more depreciation.

The Singapore dollar is down by about 17 percent against the U.S. dollar since the start of the Asian crisis last July, while the Malaysian ringgit and Thai baht have lost between 35 and 40 percent.

Even the generally sturdy Taiwan dollar -- a major competitor for electronics exports -- has lost over 19 percent of its value against the U.S. dollar.