Singdollar rises against peers following MAS' surprise move

The Singapore dollar was trading higher against most major currencies after the Monetary Authority of Singapore (MAS) surprised financial markets by tightening monetary policy yesterday.

The Singdollar strengthened against the United States dollar, euro, yen and ringgit following the second off-cycle move by MAS this year.

It sent the local currency to 1.3934 to the US dollar - a rise of about 0.9 per cent - shortly after the announcement in the morning.

It remains at the 1.40 level, meaning one US dollar buys 1.40 Singdollars.

It is higher against the Malaysian ringgit - at about 3.17 - but still shy of the 3.1986 high on May 26.

Despite yesterday's gains, the Singdollar is still down about 4 per cent against the greenback this year.

Economists said MAS' latest move is an attempt to dampen imported inflation: A stronger Singdollar would potentially make imports cheaper and help to alleviate inflationary pressures that show no signs of abating.

CIMB Private Banking economist Song Seng Wun said: "It is really about food prices. Food prices have risen significantly over the last six months, and MAS is trying to ensure that the exchange rate can help to keep imported food inflation at bay."

Singaporeans are certainly feeling the pinch.

Ms Audrey Wong, a 49-year-old who works at a non-profit organisation, said low-income families have resorted to eating canned or processed food and food nearing expiry, given the high prices.

Communications manager Kelly Chiew, 29, said tightening monetary policy to fight inflation is only a short-term solution, noting that food prices are still rising.

She believes attention should be diverted to strengthening Singapore's food security.

The spectre of surging inflation has prompted MAS to move on currency policy four times since last October. It normally moves every six months - in April and October - but has now made two out-of-cycle interventions, with the first in January.

Core inflation, the preferred price gauge used by MAS, came in at 3.6 per cent in May over the same month last year and approached a 14-year high.

Headline inflation also grew at a faster pace, touching 5.6 per cent year on year in May, the highest since November 2011.

Economists say there is still scope for MAS to tighten further at its October meeting, if inflation pressures persist.

Central banks around the world have also been on a tightening spree to fight inflation.

The US Federal Reserve has raised rates by 1.5 percentage points this year; Malaysia's central bank has lifted them to 2.25 per cent, the second increase this year; and the Philippines hiked them by 0.75 percentage point in a surprise move yesterday.

Australia and New Zealand have also been lifting rates aggressively, while the European Central Bank is tipped to hike them by 25 basis points this month.

The Singdollar has been very resilient amid the flurry of tightening and has strengthened against the currencies of a few trading partners, said Ms Selena Ling, chief economist and head of treasury research and strategy at OCBC Bank.

Mr Peter Chia, senior foreign exchange strategist at UOB, said the Singdollar should continue to outperform its Asian peers in the light of yesterday's move and the expectation of further tightening by MAS.

Economists are less sanguine about the Singdollar's outlook against the greenback as the US Fed has been the most aggressive in tightening policy among all central banks.

Mr Khoon Goh, head of Asia research at ANZ, said: "It is very hard to go against the Fed. All the MAS can do is focus on tightening monetary policy."