Singapore Will Slow Currency's Gains, Standard Chartered Says

By Patricia Lui
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Aug. 12 (Bloomberg) -- The Monetary Authority of Singapore will slow the pace of the local dollar's appreciation at the next policy review in October to support slowing exports, said Standard Chartered Plc.

The Singapore dollar declined to a five-month low after the government yesterday forecast exports to post an annual decline for the first time since 2001 and said its economy expanded at the slowest pace in five years. The government last week cut its 2008 growth forecasts, adding pressure on the MAS to reverse its policy of allowing currency strength to combat the highest inflation rate since 1982.

``The Monetary Authority of Singapore will take back the steepening of the currency's trade-weighted policy band slope that it introduced in October 2007,'' Thomas Harr, a senior currency strategist at Standard Chartered in Singapore, wrote in a research note dated yesterday. ``This implies a return to 2 percent per annum appreciation from 3.25 percent by our estimates.''

The Singapore dollar fell 0.3 percent to S$1.4112 against the U.S. currency at 10:40 a.m. from $1.4067 late yesterday, according to data compiled by Bloomberg. It earlier dropped to S$1.4143, the lowest since Feb. 21. The currency lost 2.1 percent last week, its biggest slump since May 2004. It has gained 1.9 percent this year as the central bank sort to reduce import costs with a stronger currency.

Comments, Revised Forecasts

Singapore's gross domestic product increased 2.1 percent from a year earlier in the second quarter, following a 6.9 percent expansion in the previous three months, the trade ministry said yesterday. The government cut its export forecast to drop between 2 percent and 4 percent, from an earlier estimate of growth of 2 percent to 4 percent. Shipments fell 5.5 percent last quarter.

A technical recession, or two consecutive quarters of negative growth, is unlikely by the third quarter, though it can't be ruled out, Ravi Menon, a trade ministry official, said yesterday. Prime Minister Lee Hsien Loong said Aug. 8 that Singapore was set for a ``bumpy year ahead.''

``The comments from the prime minister and the trade ministry, the revised exports and growth forecasts and remarks that inflation has peaked,'' will prompt authorities to slow the pace of Singapore dollar's appreciation at the next policy meeting, said Harr in an interview.

Singapore's central bank conducts its monetary policy by guiding the local dollar within an undisclosed band of trade- weighted currencies of major trading partners. Policy adjustments are made via the band's slope, width and center to set the pace for the local dollar to rise or fall against its trading partners' currencies over a certain period.

The central bank adopted faster currency appreciation in October 2007 and announced a one-off strengthening at its last policy meeting in April.

``The central bank has shown lately that it is willing to tolerate a slightly weaker currency,'' Harr said. ``They will still have a tight exchange rate policy. It is unlikely they will move to a neutral bias in October although they may do that next April.''

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