Monday April 21, 2008

Asian currencies rise as MAS unexpectedly sets higher trading range for Singapore dollar

bloomberg.com :

The yen rose to a one-week high against the dollar after Singapore unexpectedly set a higher trading range for its currency to curb inflation. Asian currencies including the Singapore dollar, the Malaysian ringgit and the Taiwanese dollar all climbed. The Singapore dollar rose to a record of S$1.3609 per dollar from $1.3769 late yesterday [9 Apr 2008] in New York. The Monetary Authority of Singapore [MAS] manages the island-state's currency within a undisclosed trading band against a basket of currencies of major trading partners. A stronger currency will reduce the surging cost of importing food which accounts for 23% of the consumer price index. Inflation reached a 26-year high of 6.5% in February from a year earlier driven by record prices for rice, grain and crude oil. Finance Minister Tharman Shanmugaratnam said last week Singapore's growth may slow in coming quarters, and the island's inflation rate may not have peaked yet.

bloomberg.com :

The Singapore dollar climbed to a record high after the central bank unexpectedly set a stronger trading range to slow the fastest inflation in 26 years. The Monetary Authority of Singapore, which uses exchange rates instead of interest rates to manage the export-driven economy, previously targeted "modest" appreciation within an undisclosed trading band. "They typically don't muck around with the centre of the band unless there's a crisis," said Joseph Tan, a strategist at Fortis Bank in Singapore. "It tells me we are behind the curve on inflation, and we are playing catch up."

- One day, I was looking at the USD/SGD forex rate hovering around 1.382 and the next day, I was staring at 1.362. That's one principal reason why I don't really like to trade forex - the massive, unfair, and unpredictable interventions by governments and central banks all over the world, no matter what currency. The word on the street after this broke out was that "they" are targeting 1.36 and that this level should hold, but now the exchange rate has dropped further to 1.3549 as of this past Friday's close.

My take on this, like what this Joseph Tan was saying, is that they are reacting to a crisis situation. I couldn't disagree on having a relatively "stronger" currency. But then in today's global financial system, all things are relative. In a sea of floating fiat currencies, it's only a matter of which one is devaluing slightly faster or slightly slower than the rest.

Look at it this way. In the past 2 years, USD/SGD has gone from 1.6 to 1.36, which means that the Singapore dollar has strengthened, relatively, by some 15%. But in the same timeframe, crude oil has gone from $50 to over $110, which is over 100%. So much for "combating inflation". Sure, the Singapore dollar may have "strengthened", but underlying, crucial commodities have "strengthened" even faster. Check out the Australian case for more on this.

See also :

1. Australian CPI inflation holds at 2-year high of 4% in Mar 2008
2. Singapore CPI inflation hits 6.6% in Jan 2008 - a new 25-year record high
3. Singapore CPI inflation rate at 6.5% in Feb 2008, holds near 25-year record

(2008-04-21 00:13:10 SGT) [Biz] Permalink

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