SINGAPORE: As the city-state’s central bank, the Monetary Authority of Singapore, appears to be determined to keep using a firm exchange rate to fight against inflation, the odds are looking good for the Singapore dollar to outperform other Asian currencies for the third consecutive year, Bloomberg reported on Monday (July 22).
The Singapore dollar is one of the most-traded currencies in Asia and around the world, representing around 2 per cent of daily forex trades.
Singapore’s economic strength and stability and its reputation as a financial hub have contributed significantly to having one of the strongest currencies in the region.
Currently, the Singdollar is ranked third in Asia behind the Hong Kong dollar and the Indian rupee. Bloomberg added, however, that it is catching up with the other two currencies.
TD Securities macro strategist Alex Loo says, “We expect SGD to continue its outperformance in the second half as we don’t expect MAS to aggressively reduce the slope of the S$NEER policy band this year.
SGD should continue to benefit from the appreciation path of the policy band, while the pickup in growth momentum and upswing in global trade should bolster SGD’s appeal to investors.”
The Hong Kong dollar, pegged to the US dollar since 1983, has been performing well this year. However, a likely Federal Reserve rate cut on the horizon poses a considerable threat to its currency.
Bloomberg added that the Indian rupee is also showing signs of weakness.
Unlike other countries that manage inflation through monetary policy, MAS controls prices by managing the Singapore dollar (SGD) exchange rate.
This means that the weaker the Singapore dollar is, the more expensive goods are for Singaporeans. Conversely, a strong Singdollar means more affordable goods and lower inflation.
“The key objective of MAS’ monetary policy is to ensure medium-term price stability that is conducive to sustainable growth of the economy. This means consistently ensuring that inflation is low and stable over a time frame of more than a year.
Households and businesses can plan for the longer term without worrying about prices rising too quickly, and there is a firm foundation for the economy to grow,” the central bank says in an explainer on its website. /TISG
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