Singapore Dollar to Fall, Reverse Gains Since April, DBS Says

By Patricia Lui

July 9 (Bloomberg) -- Singapore's dollar will fall as the economy slows, reversing the gains made since the central bank in April sought a stronger currency to curb inflation at a 26- year high, said DBS Group Holdings Ltd.

The island's currency eased to a 1.4 percent gain last quarter, the slowest pace in a year, as economists forecast a report tomorrow will show the economy grew at the slowest pace since 2003. The Monetary Authority of Singapore conducts its monetary policy using the currency, guiding it within a trading range against an undisclosed basket of its major trade partners.

``It will be hard to ignore the growth risks,'' said Philip Wee, a senior currency economist at Singapore's largest local bank. ``A further currency policy tightening is unlikely.''

The Singapore dollar will decline to $1.38, said Wee, without specifying a time frame. It was at S$1.3628 to the U.S. dollar as at 12:54 p.m. local time, according to data compiled by Bloomberg. The currency rose 1.7 percent on April 10 as the central bank unexpectedly set a stronger trading range.

``Back in April, the central bank was in a more comfortable position to worry about inflation rather than growth,'' said Wee.

A stronger currency reduces the cost of imports, whilst a weakening foreign-exchange rate may boost exports by lowering the prices of goods sent overseas.

Gross domestic product expanded 4.7 percent from a year earlier, said DBS, after growing 6.7 percent in the previous three months. The median estimate of 18 economists in a Bloomberg survey is 3.2 percent growth. May consumer prices rose 7.5 percent, matching April's 26-year high as record global crude oil and food prices fueled inflationary pressures.

To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net