MAS to allow modest and gradual rise of Singdollar

Move comes as flash Q1 figures show 4.3% growth, up from 3.6% in previous quarter, driven by manufacturing

Steady economic growth has prompted the Monetary Authority of Singapore (MAS) to return the Singdollar to a "modest and gradual appreciation path" after two years in a neutral stance.

The move will let the dollar gradually increase against a basket of currencies of Singapore's major trading partners.

That, in turn, should tamp down inflation by making imported goods a little cheaper, while giving Singaporeans a bit more bang for their buck when they venture overseas.

The move announced yesterday came alongside Trade and Industry Ministry flash figures that put first-quarter growth at a healthy 4.3 per cent. This was in line with economists' expectations and up from the previous quarter's expansion of 3.6 per cent.

Manufacturing remained the key growth driver, expanding 10.1 per cent in the first quarter compared with the same period last year.

That was a marked improvement on the 4.8 per cent expansion in the final quarter of last year.

All clusters within the manufacturing sector grew in the first quarter, with electronics and precision engineering the biggest contributors.

Services, which make up two-thirds of the economy, expanded 3.8 per cent, slightly up from the fourth quarter's 3.5 per cent growth.

Economists expect services to take over from manufacturing as the main growth engine this year.

"While growth in the manufacturing sector will moderate as global economic conditions normalise, the strength in the service sector is likely to persist, thanks to positive spillover from the global recovery to the domestic sector," said DBS economist Irvin Seah.

The flash figures showed continued weakness in construction, which contracted 4.4 per cent compared with the same three months last year. This followed the 5 per cent year-on-year decline in the fourth quarter of 2017, and was due to falls in both private-sector and public-sector building.

UOB economist Francis Tan expects that the high level of collective-sale activity last year will support private-sector construction this year.

Economists stuck to their full-year growth forecast of about 3 per cent, down from last year's 3.6 per cent.


MAS also maintained its expec-tation of full-year growth coming in "slightly above the middle" of its 1.5 per cent to 3.5 per cent forecast range.

Core inflation - which excludes the costs of private road transport and accommodation - edged up, averaging 1.6 per cent year on year in January to February, said MAS.

It noted that the policy change for the dollar stemmed from its view that the economy is "likely to remain on its steady expansion path in 2018", while upward pressure on core inflation is expected to persist.

With these factors in mind, it decided to let the Singdollar rise against currencies of major trading partners within the undisclosed trading band, which is unchanged.

"This policy stance is consistent with a modest and gradual app-reciation path... that will ensure medium-term price stability," it added.

Though steady growth is expected, both MAS and economists highlighted global trade tensions as the main downside risk.

The MTI flash figures are based largely on data from January and February, with fuller estimates to be released next month.

A version of this article appeared in the print edition of The Straits Times on April 14, 2018, with the headline 'MAS to allow modest and gradual rise of Singdollar'. Print Edition | Subscribe