Economists are expecting the Monetary Authority of Singapore (MAS) to slow the country’s currency appreciation when it releases its mid-year monetary policy statement on 14 October.
“In the past few weeks, the situation in the global economy has deteriorated sharply, exacerbated by stalling recovery in the US and the ongoing uncertainty in Europe. Singapore’s economy will be adversely impacted via the manufacturing and some trade-related service sectors,” said Chow Penn Nee, an economist at United Overseas Bank (UOB).
She expects the MAS to pace the appreciation of the Singaporean dollar’s nominal effective exchange rate at two percent annually, instead of the current 3.5 percent rate.
“Inflation is still elevated, so we don’t expect the slope to be eased significantly,” she said.
Since April 2010, the MAS has allowed the currency to shoot up to off-set inflation, as the economy recovered from the financial crisis. By August 2011, it had outpaced the US dollar by 10 percent.
Inflation, which grew at 5.7 percent in August from a year ago, is still high. The economic outlook has declined, given the Euro Zone debt crisis and rising unemployment in the US.
“The sharp depreciation of the S$NEER (nominal effective exchange rate) in recent weeks is a de-facto easing,” said Wu Kun Lung, research analyst at Credit Suisse, agreeing that the Singapore dollar will appreciate more slowly.
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