Singapore May Keep Dollar Gains on Price Threats: Southeast Asia

The Monetary Authority of Singapore will probably retain the existing pace of currency appreciation as lingering inflation limits the scope for policy makers to support subdued growth, a survey of analysts showed.

Officials will keep gains in Singapore’s dollar when they announce their decision April 12, and refrain from changing the slope, width or center of its trading band, according to 21 of 22 financial companies polled by Bloomberg News. Commerzbank AG said there’s a chance the MAS will shift to a zero slope.

“One can argue the state of the growth outlook is relatively dim at the moment,” Enrico Tanuwidjaja, a Singapore-based economist at Royal Bank of Scotland Group Plc, said by phone on April 5. “The inflation risk is still very prevalent, which will keep the MAS tilting its balance of concern toward inflation expectations.”

Reports last month showed industrial production slid the most in at least three years in February, while exports posted the biggest decline since 2009, leading economists to predict that gross domestic product growth slowed in the quarter ended March 31. Consumer prices accelerated at the fastest rate in eight months, which analysts say may keep the MAS from altering the pace of currency gains, its main policy tool.

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.

Stand Pat

The MAS unexpectedly left monetary policy unchanged at its most recent review on Oct. 12, saying its stance was “appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth.” The move was predicted by five of 23 financial companies surveyed by Bloomberg last year.

The Singapore dollar climbed 0.2 percent to S$1.2401 versus its U.S. counterpart as of 12:39 p.m. local time It will probably be at S$1.24 by June 30 and 1.6 percent stronger at S$1.22 by the end of this year, according to the median estimate in the poll for this month’s policy decision.

The local dollar has lost 1.5 percent since Dec. 31. That trailed drops in the currencies of Asian neighbors including Japan and South Korea, which have enacted measures to stem inflows and to keep their exports competitive.

Export Slump

The city state’s overseas shipments dropped 30.6 percent in February from a year earlier, the most since January 2009, the trade promotion agency said on March 18. That was almost twice the 16 percent slide predicted by economists. Government figures released a week later showed industrial production fell 16.6 percent over the same period on a 12-month basis, the most in Singapore Economic Development Board data compiled by Bloomberg dating back to 2010.

The economy probably expanded 2 percent last quarter from the previous period, according to the median estimate of nine analysts polled by Bloomberg before the data due on April 12. GDP rose 3.3 percent in the three months ended Dec. 31.

Singapore may expand 2.8 percent this year, a MAS survey showed last month, up from a predicted 2.7 percent pace in a poll published in December. The global economy will probably grow 2.4 percent in 2013, according to the median forecast in a Bloomberg survey of economists.

‘Nagging Issue’

“Economic growth, while relatively subdued in the near-term, is still on track to come in better than 2012 on average,” Thomas Lam, the chief economist at OSK-DMG in Singapore, wrote in an e-mail on April 5. “However, domestic inflationary pressure remains a nagging issue.”

Thousands of people gathered for a protest on Feb. 16 after the government unveiled a white paper outlining proposals to allow more immigration. Residents on the island that’s smaller than New York City jumped by more than 1.1 million since mid-2004 to 5.3 million, increasing demands on infrastructure and contributing to higher housing and transport costs.

Prime Minister Lee Hsien Loong imposed limits on how much buyers seeking a second mortgage can borrow and increased taxes on real-estate transactions to curb speculation in Asia’s second-most expensive housing market. An index tracking prices of private residential property climbed last quarter by the least since the period ended June 2012, the Urban Redevelopment Authority said April 1.

Measures Implemented

“The government has implemented measures to restrict the use of excess liquidity,” Charlie Lay, a Singapore-based foreign-exchange strategist at Commerzbank, wrote in an e-mail on April 5. “We should see house-price appreciation contained,” which should slow headline inflation, he wrote.

Still, consumer prices remain elevated. A March 25 report showed prices climbed 4.9 percent in February from a year earlier, the fastest pace since June and more than double the 1.9 percent average in the past 20 years. Singapore’s inflation rate is the highest of a group of 13 major economies tracked by Bloomberg. It compares with a 3.2 percent pace for China and 2 percent for the U.S.

“The MAS will remain vigilant towards upside risks to core inflation” though risks to growth are to the downside, Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore, wrote in a March 27 e-mail. “We expect the MAS to maintain its modest and gradual appreciation stance.”

Company            Policy               Mid-’13          End-’13
ANZ                No change             1.25             1.25
BNP                No change             1.24             1.22
CBA                No change             1.215            1.19
Citi               No change             1.24             1.22
Commerzbank        Zero slope            1.24             1.25
Credit Agricole    No change             1.24             1.22
Credit Suisse      No change             1.255            1.235
DBS                No change             1.21             1.19
Deutsche Bank      No change              --               --
Goldman            No change             1.22             1.18
HSBC               No change             1.26             1.24
ING                No change             1.248            1.247
JPMorgan           No change             1.18             1.16
Maybank            No change             1.23             1.215
Mizuho             No change             1.22             1.20
OCBC               No change             1.2445           1.241
OSK-DMG            No change             1.26             1.24
RBS                No change             1.22             1.20
Scotia             No change             1.22             1.21
Stanchart          No change             1.24             1.21
UOB                No change             1.26             1.22
Westpac            No change             1.23             1.22
Median:            No change             1.24             1.22
Respondents: 22
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