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Singapore to Slow Currency Gains to Aid Growth, Survey Shows

The Monetary Authority of Singapore will slow or end the appreciation of the city state’s currency, joining other central banks in the region seeking to bolster weakening growth without spurring further consumer-price gains, analysts said.

Policy makers will reduce the degree of tightening at this week’s twice-yearly meeting by adjusting the exchange-rate band for the currency, according to 14 of 22 economists surveyed by Bloomberg News. Seven forecast an easing of monetary conditions. One said the central bank will maintain the currency’s appreciation after re-centering the band upward at its last review in April to cool inflation.

“The balance of risk has shifted clearly in favor of growth now,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore, who forecast the MAS will move to a zero slope. “We think the government has sent quite clear signals that they are quite concerned about the global economy. If the economy slows, that should ease inflationary pressures.”

Central banks from New Zealand to Malaysia refrained from raising benchmark rates last month as Europe’s debt crisis and a struggling U.S. economy dimmed the outlook for the region’s export-reliant nations. The Reserve Bank of Australia kept borrowing costs unchanged on Oct. 4 and signaled it has scope to lower them if inflation eases, while economists predict central bankers in South Korea will also hold policy rates at this week’s meeting. Indonesia’s central bank unexpectedly lowered its reference rate today for the first time in more than two years.

Flatter Slope

Singapore’s monetary authority uses the exchange rate rather than borrowing costs to conduct monetary policy, adjusting the pace of appreciation or depreciation against an undisclosed trade-weighted band of currencies by changing the slope, width and center of the band. A flatter slope allows slower appreciation or depreciation over time.

Policy makers will reduce the band’s slope, said 14 analysts, two of whom also said the range will be re-centered. A reduction of the slope may be seen as moderating monetary policy. Six predicted zero slope, for a greater reduction in the policy tightening of the MAS stance, including one who called for a re-centering. One analyst said policy makers will re-center the band to aid growth.

The MAS tightened monetary conditions at each of its last three gatherings.

Inflation Quickens

Singapore’s inflation rate accelerated in August to the fastest pace since October 2008 as the consumer price index rose 5.7 percent from a year earlier, according to the Department of Statistics. Consumer prices will probably increase 4.5 percent this year, a central bank survey of economists showed last month, compared with the forecast from the MAS that inflation will average as much as 5 percent.

Singapore’s dollar traded at S$1.2801 against its U.S. counterpart as of 3:21 p.m. local time, after reaching a 2 1/2-week high of $1.2744 yesterday, data compiled by Bloomberg show. The currency touched S$1.3199 on Oct. 4, the weakest level this year, and has advanced 0.3 percent since Dec. 31.

Gross domestic product probably increased 0.8 percent last quarter from the previous three months, when it dropped an annualized 6.5 percent, according to the median estimate of economists surveyed by Bloomberg. The trade ministry will release its advanced estimates for growth at 8 a.m. on Oct. 14.

The government expects growth of as much as 6 percent this year. The Southeast Asian island’s economy will probably expand 5.5 percent this quarter from a year earlier, the MAS survey showed.

“We’ve got slowing signs in Europe, slowing signs in the U.S., even in Asia and Singapore’s economy itself,” said Jonathan Cavenagh, a Westpac Banking Corp. strategist who said the central bank will reduce the band’s slope. “Particularly for an economy like Singapore, which still very much depends on the fortunes of the global economy, we think it’s prudent that the MAS will reduce the degree of tightening.”

The Singapore dollar will be little changed at S$1.28 as of the end of the year, according to the analyst survey.

Below is a table summarizing predictions for the MAS policy stance and forecasts for the Singapore dollar.

Company         October              Policy         SGD End-’11
ANZ              Ease              Zero slope             -
Barclays         Less tightening   Reduce slope          1.26
BNP              Less tightening   Reduce slope          1.20
CBA              Less tightening   Reduce slope          1.26
Citi             Less tightening   Reduce slope          1.29
CIMB             Ease              Re-center/zero slope  1.35
Commerzbank      Ease              Zero slope            1.30
Credit Agricole  Less tightening   Reduce slope          1.33
Credit Suisse    Less tightening   Reduce slope          1.25
DBS              Less tightening   Reduce slope          1.24
Deutsche Bank    Less tightening   Re-center/reduce slope  -
Goldman          Ease              Zero slope            1.28
HSBC             Less tightening   Reduce slope          1.27
ING              Ease              Re-center             1.298
JPMorgan         Less tightening   Reduce slope          1.22
Maybank          Less tightening   Reduce slope          1.31
OSK-DMG          Less tightening   Reduce slope          1.28
RBS              Ease              Zero slope              -
SEB              No change              -                1.27
Stanchart        Ease              Zero slope            1.35
UOB              Less tightening   Reduce slope          1.29
Westpac          Less tightening   Re-center/            1.31
                                   reduce slope
Median:          Less tightening   Reduce slope          1.28
Respondents:     22

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