Published: Thursday April 14, 2011 MYT 10:48:00 AM
SINGAPORE: Singapore will allow its currency to strengthen in a bid to ease inflationary pressures sparked by robust economic growth and rising energy and food costs, the central bank said Thursday.
The Monetary Authority of Singapore said in a biannual policy statement that it will re-center its exchange rate policy band upward while leaving the slope and width of the band unchanged.
Meanwhile, gross domestic product jumped a seasonally adjusted annualized 24 percent in the January-to-March period from the previous quarter, the Trade and Industry Ministry said separately Thursday.
"The key tipping point for the more aggressive policy shift was the strong performance of first quarter GDP," said Wai Ho Leong, an analyst with Barclays Capital in Singapore. Leong estimated the central bank revalued the currency band between 1 percent and 1.5 percent.
Central bankers across Asia have tightened monetary policy this year, mostly through higher lending rates, as soaring commodity prices and solid economic growth threaten to spur inflation.
The Singaporean dollar has gained about 2 percent so far this year to a record SG$1.25 per U.S. dollar after strengthening 9.3 percent last year. Singapore's central bank uses its currency exchange rate policy, rather than interest rates, to regulate monetary liquidity and inflation.
The central bank left unchanged its 2011 inflation forecast of between 3 percent and 4 percent. Consumer prices rose 5 percent in the 12 months through February.
"Global oil and food prices have increased and will remain high," the central bank said. "Headline inflation is forecast to stay elevated. Domestic cost and price pressures will remain firm."
The central bank adjusted its trading band twice last year to allow the currency to strengthen. Policymakers have said recently that they will use a stronger Singaporean dollar to combat inflation, but don't want to strengthen the currency too much because that could undermine the city-state's export competitiveness.
Singapore's economy, which relies on manufacturing, finance and tourism, jumped a record 14.5 percent last year.
Last quarter on a seasonally adjusted annualized basis, manufacturing surged 80 percent, construction gained 15 percent and services increased 8.4 percent, the ministry said.
"This is significantly higher than what the market had expected and once again underlined the strong economic fundamentals of this small open economy," Singapore's DBS bank said.
The economy grew a seasonally adjusted annualized 3.9 percent in the fourth quarter.
Compared with the same period a year earlier, the economy grew 8.5 percent in the first quarter after expanding 12 percent in the fourth, the ministry said.
The central bank said the economy will likely grow this year "at the upper end" of the government's forecast of between 4 percent and 6 percent.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/20110414105510&sec=business
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