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Singapore’s MAS to Hold Currency-Gain Pace, Survey Shows

Singapore to Hold Currency-Gain Pace on Inflation
The MAS announced a reduction to the slope of its policy band on Oct. 14, citing an “expected moderation in core inflation.” Photographer: Munshi/Ahmed/Bloomberg

The Monetary Authority of Singapore will maintain the current pace of appreciation of the city state’s currency on speculation consumer-price gains will limit the authority’s scope to ease policy, analysts said.

Officials will hold the current rate of the local dollar’s advance and refrain from altering its trading band, according to 19 of 21 financial companies surveyed by Bloomberg News. Two said there is a chance the central bank will either keep its stance unchanged or increase the band’s slope to levels prior to its last review in October. The government will announce the currency decision on April 13, the same day it releases preliminary gross domestic product data.

Core inflation is “proving to be more persistent,” Khoon Goh, a Singapore-based senior currency strategist at ANZ National Bank, wrote in an e-mailed response to questions. “We see the MAS maintaining the current appreciation slope to keep inflation within target.”

The MAS is forecast to join central banks from Australia to Thailand, which refrained from raising benchmark rates this month and last as they weigh inflation risks. Economists predict policy makers in Indonesia and South Korea will also hold borrowing costs when they gather this week.

Singapore’s central bank 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.

Core Inflation

The MAS announced a reduction to the slope of its policy band on Oct. 14, citing an “expected moderation in core inflation.” It tightened monetary conditions at each of its previous three gatherings.

Costs in the economy have been more persistent, and the MAS is “very concerned” about prices, Minister for Trade and Industry Lim Hng Kiang said yesterday. The authority doesn’t have a formal inflation target, Lim said, speaking in parliament.

The city state’s consumer price index rose 4.6 percent in February from a year earlier, after climbing 4.8 percent in January, the Department of Statistics said March 23.

The core inflation rate, which excludes accommodation and private transportation costs, was 3 percent. The measure may be about 3 percent in the next few months, the central bank and trade ministry said in a monthly statement on price trends released on the same day.

Singapore’s dollar traded at S$1.2612 against its U.S. counterpart as of 6:53 a.m. local time, up from this year’s low of S$1.3006. The median forecast shows the currency may advance to S$1.25 by June 30 and strengthen to S$1.23 by year-end.

It has appreciated 2.8 percent since Dec. 31, the fourth-biggest gain against the U.S. dollar among the most-traded currencies. In 2011, the Singapore dollar gained 1 percent versus the greenback and advanced against 10 of 16 major peers.

The economy probably rebounded from a contraction, growing 7 percent in the first quarter from the previous three months, according to the median of 11 estimates in a separate Bloomberg survey.

Company               Policy         SGD Mid-’12     SGD End-’12
ANZ                 No change              1.23          1.22
Barclays            No change              1.24          1.22
BNP                 No change              1.25          1.24
CBA                 No change              1.25          1.22
Citi                No change/Incre. Slope 1.26          1.24
Commerzbank         No change              1.29          1.32
Credit Agricole     No change              1.24          1.24
Credit Suisse       No change              1.27          1.25
DBS                 No change              1.30          1.26
Deutsche Bank       No change               --            --
Goldman             No change              1.24          1.20
HSBC                No change              1.24          1.20
ING                 No change              1.25          1.238
JPMorgan            No change/Incr. Slope  1.21          1.23
Maybank             No change              1.25          1.23
Mizuho              No change              1.28          1.25
OCBC                No change              1.28          1.2175
OSK-DMG             No change              1.27          1.25
RBS                 No change              1.25          1.24
Stanchart           No change              1.26          1.20
UOB                 No change              1.24          1.22
Median:             No change              1.25          1.23
Respondents: 21

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