Stronger Singapore dollar 'not expected to significantly affect exports'

A stronger currency helps absorb some of the inflation that seeps in with imported goods and raw materials. ST PHOTO: MARK CHEONG

SINGAPORE - The stronger Singapore dollar is not expected to significantly affect the country's exports, and companies here may in fact benefit from it through reduced costs of imported items, said Monetary Authority of Singapore (MAS) board member Alvin Tan on Monday (April 9).

MAS has tightened its monetary policy stance three times since last October, in line with rising global price pressures and an improvement in external economic conditions.

The central bank uses the Singapore dollar nominal effective exchange rate to achieve medium-term price stability as the country has a small and open economy.

A stronger currency helps absorb some of the inflation that seeps in with imported goods and raw materials. Imported inflation is the biggest source of price gains in Singapore, which virtually buys everything it consumes from overseas.

Mr Tan, who is also Minister of State for Trade and Industry, said in Parliament that the strengthening of the Singapore dollar is necessary to dampen inflation and help preserve the purchasing power of businesses and households.

"It is not expected to have a significant negative impact on Singapore's exports," said Mr Tan, noting that growth in non-oil domestic exports remained firm in the first quarter of this year.

"With continuing uncertainty in the global economic environment, Singapore's exports are primarily dependent on demand rather than our exchange rate," he added.

He was responding to a question by Mr Desmond Choo (Tampines GRC) about the impact of tighter monetary policy on Singapore's export competitiveness and whether the MAS will continue to strengthen the Singapore dollar if core inflation does not moderate over the next few months.

Mr Tan cited the Economic Development Board's latest survey of the manufacturing sector's business expectations, which showed that the Singapore dollar exchange rate is not a key limiting factor for manufacturing firms' export orders.

He added: "Singapore's exports are generally in high value-added products and services where demand is less sensitive to price and, therefore, exchange rate changes. Further, a stronger exchange rate helps reduce the import costs faced by our export industries."

MAS expects core inflation to continue rising in the coming months before peaking at around 4 per cent in the third quarter of this year.

"Inflation is, however, expected to remain at elevated rates for some time, higher than what we've experienced in recent years. This has been primarily due to pressures in global energy and other commodity markets," said Mr Tan.

"However, because MAS began shifting its policy stance early, it has been able to respond to rising inflationary pressure through gradual shifts in exchange rate policy... had MAS not begun tightening policy last year, ahead of many central banks, it would have had to allow for a steeper appreciation of the exchange rate."

He added that MAS' monetary policy response is part of the Government's multi-pronged strategy to deal with rising inflationary pressures.

Mr Choo asked in a supplementary question if MAS expects the strengthening of the Singapore dollar to affect the country’s gross domestic product forecast for this year. 

He also asked how the surge in the US dollar has affected the impact of monetary policy tightening, and if further measures are needed.

Mr Tan said in response that Singapore’ economy should grow at the 3 per cent to 5 per cent rate previously forecast, barring further disruptions caused by the Ukraine war or a severe setback in the pandemic’s trajectory. 

He added that MAS manages the Singapore dollar against a basket of currencies of the country’s major trading partners, and any bilateral exchange rate movement will have a muted impact on its nominal effective exchange rate.

MAS will continue to focus on medium-term price stability, avoid sudden, large shifts in policy and remain vigilant to the impact of external developments, he said.

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