Singapore Budget 2015: Slower S$ rise will not impact inflation forecasts: Lim Hng Kiang

SINGAPORE - The Singapore dollar is now appreciating more slowly against the currencies of Singapore's main trading partners and competitors, but this is not expected to have a significant impact on the Government's inflation forecasts, Minister of Trade and Industry Lim Hng Kiang said in Parliament on Monday.

Mr Lim was responding to a query from Mr Liang Eng Hwa (Holland-Bukit Timah GRC), who asked whether the weaker Singdollar will lead to higher imported inflation, especially for the prices of imported necessities.

In a surprise move in January, the Monetary Authority of Singapore (MAS) acted months ahead of its scheduled meeting to tweak its exchange rate policy and ease the rise of the Singapore dollar.

The almost unprecedented step was prompted by plunging oil prices, which have quelled inflation and eased the need for a strong Singdollar to combat rising prices.

The central bank uses the exchange rate as its main tool to strike a balance between controlling inflation from overseas and laying the foundations for economic growth.

A stronger currency helps counter inflation as imports are cheaper in Singdollar terms. On the other hand, a weaker Singdollar helps exporters whose goods become less expensive in foreign markets.

While the MAS' move will help exporters, it has also led to higher interest rates, Mr Liang noted. He asked if the sharp increase in interest rates will have an adverse impact on businesses.

In response, Mr Lim said interest rates began rising "way ahead of the (MAS') off-cycle adjustment".

The higher interest rates are in anticipation of the United States Federal Reserve raising interest rates sometime this year, he added.

"Singapore being a very open economy, interest rates have moved in anticipation of that decision by the Federal Reserve."