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.