Singapore will revalue its currency to tame inflation, which exceeded the government’s target in February, joining other Asian central banks in tightening monetary policy, 10 of 20 analysts surveyed by Bloomberg predicted.
The Monetary Authority of Singapore will re-center the band in which the city-state’s dollar is allowed to trade against a weighted basket of currencies on Thursday, the analysts said.
Six forecast no change from the “modest and gradual appreciation” stance adopted in the last policy meeting in October. Four expect faster gains in the currency will be achieved through a steepening of the band.
“Inflationary pressures should still dominate,” said Chow Penn Nee, an economist at United Overseas Bank Ltd in Singapore. “A one-off shift at first might seem to be a more aggressive tightening measure, but over time the Singapore dollar doesn’t necessarily have to appreciate owing to the uncertainty of economic growth.”
The Singapore dollar was up 0.1 percent to S$1.25562 against its US counterpart as of 2:04pm, bringing gains this year to 2.1 percent, the fourth-best performance in Asia, according to data compiled by Bloomberg.
It reached S$1.25517 earlier, the strongest level since at least 1981 when Bloomberg began tracking the data.
The currency climbed 9.3 percent last year, its best performance since 1994, after the central bank unexpectedly tightened policy at both of its biannual reviews.
The monetary authority uses the exchange rate rather than borrowing costs to conduct monetary policy, adjusting the pace of appreciation or depreciation against an undisclosed trade-weighted band of currencies by changing the slope, width and center of the band.
A steeper slope allows faster appreciation over time, while lifting the band’s midpoint amounts to a one-off revaluation. Policymakers revalued the currency in April last year and steepened the slope in October.
Consumer prices rose 5 percent in February from a year earlier, after a 5.5 percent gain in January, according to official data released on March 23.
Prices may advance by up to 4 percent this year, compared with an earlier forecast of no more than 3 percent, the government predicted on Feb. 17.
China, India, Indonesia, South Korea, Taiwan, the Philippines and Thailand have raised interest rates this year to slow inflation caused by rising fuel and food prices.
Economic growth could ease to 4 percent to 6 percent this year, after a record expansion of 14.5 percent last year, the government forecast in February.
The Singapore dollar will strengthen 0.4 percent by the middle of the year to S$1.25 and 2.9 percent by year-end to S$1.22, according to the median estimates of the 20 analysts.
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