Singapore dollar hovers near 8-month high ahead of MAS policy review

The market is now waiting for the monetary policy decision by the Monetary Authority of Singapore due on Thursday.

The Singapore dollar has been hovering near a multi-month high against the greenback over the past few weeks despite weak growth prospects for the city economy as experts see no chance for the policymakers to halt the rally of the local dollar.

Moving off a near 7-year low of 1.4444/US dollar touched in January, the Singapore currency has rallied more than 5.6% through February and March and traded as strong as 1.3414/US dollar on 31 March, its best level since July last year.

The market is now waiting for the monetary policy decision by the Monetary Authority of Singapore (MAS) due on Thursday.

Singapore alters its exchange rate during policy reviews in order to counter inflation pressures or to boost growth. Stronger currency will ease inflation as imported goods will be cheaper but at the same, it should be weak enough to boost economic growth.

Economists say that Singapore has several downside risks to growth as of now but the MAS is unlikely to alter the exchange rate favoring a weaker currency this time as worries related to slower global growth have calmed down.

The business-boosting measures announced in the recent Budget will help cushion the slowdown in the Lion City, according to expert market participants.

The downside risks to Singapore growth are unlikely to prompt a shift in monetary policy as the slower growth likely still falls within the central bank's projections, analysts said.

"There was a lot of worry about the performance of the global economy earlier in the year, but now it's a bit calmer," CIMB economist Song Seng Wun was quoted in a Straits Times article.

"It remains to be seen if this is just temporary but, for now, we would argue that the numbers so far are still within MAS parameters," he added.

The Lion City nation will see much slower growth rates this year than forecast earlier and the inflation rate is likely to fall below the zero mark, according to an economists' survey released on 16 March.

Median of estimate in the MAS survey taken part by some 24 private economists showed Singapore's GDP growth rate to drop to 1.9% for 2016 from 2.2% predicted in the previous poll.