Singapore Dollar Gains on Speculation Central Bank Intervened

By Patricia Lui

Jan. 21 (Bloomberg) -- The Singapore dollar rose for the first time in three days on speculation that the central bank intervened to support the local currency after it fell to a six- week low.

The Singapore dollar also gained after the central bank said that its monetary policy stance for zero appreciation of the currency remains intact and it will keep to its half-yearly policy review schedule. The next meeting on its foreign-exchange stance is due in April. Central banks intervene in currency markets by buying or selling foreign exchange.

“The Singapore dollar recovered on suspected central bank intervention,” said Joanna Tan, a regional economist at Forecast Pte in Singapore. “The currency was also given a boost by the central bank comments that there was no policy change and they are not bringing forward the April meeting. That squashed speculation of any inter-meeting move.”

Singapore’s dollar rose 0.3 percent to S$1.5035 to the U.S. currency as of 8:57 a.m. local time, according to data compiled by Bloomberg. It fell as much as 0.3 percent to $1.5120 earlier, the weakest level since Dec. 8.

There’s no reason for a persistent weakening in the Singapore dollar, Monetary Authority of Singapore Deputy Managing Director Ong Chong Tee told reporters in Singapore today.

Earlier Declines

The currency earlier fell on speculation that the central bank will adopt a weak currency policy after the government forecast an economic contraction of much as 5 percent this year.

Gross domestic product grew a worse than expected 1.2 percent last year, the trade ministry said today. It had predicted a 2009 contraction of as much as 2 percent on Jan. 2.

“It’s a near certainty now that they will move towards a weaker currency policy stance come April,” said Dwyfor Evans a strategist with State Street Global Markets in Hong Kong. “The question now is if they will opt for a one-off depreciation in addition to the weaker currency stance, the opposite of what they did last April.”

Singapore’s central bank manages its monetary policy by guiding the currency within an undisclosed band based on a weighted basket of major trading partners’ currencies. Policy adjustments are made by changing the slope, width and center of the band.

The authorities stopped seeking currency gains at the October policy review after the country fell into a recession in the third quarter, replacing it with a zero appreciation stance.

Singapore’s dollar may fall to as low as S$1.60 to the U.S. currency in the run-up to the April policy review, Evans said. Economists are forecasting the currency will fall to S$1.55 against the U.S. dollar by June, according to the median estimate of a Bloomberg survey of 22 banks and brokerages.

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