Singapore dollar plunges despite GDP positive as MAS says will curb the currency's appreciation

Most analysts were expecting the MAS to leave the policy steady.

The Singapore dollar fell across the board on Thursday after the Monetary Authority of Singapore (MAS) said that it will take steps to arrest further rally in the currency as it would adversely affect the growth prospects of the City.

The move came as a surprise as most analysts were expecting the MAS to leave the policy steady as several external downside risks to growth have cooled down of late.

The slide against the US dollar on Thursday marked a reversal from an 8-month high, and against the euro, the Singapore unit's move was off a 1-month high.

The USD/SGD pair rallied to 1.3661 on Thursday from the previous close of 1.3507 translating to a 1.1% slide in the Singapore dollar.

The local dollar weakened to 1.5326/euro from the previous close of 1.5228 making a 0.64% slide on the day. Against the pound, the SGD fell 0.74% to 1.9331.

In Singapore, authorities control the trading path of the currency in order to tackle inflationary and growth challenges.

Appreciation in the local currency will help contain inflation but will make exporters of the City less competent, adversely affecting growth.

"This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the Singapore dollar nominal effective exchange rate (S$NEER) policy band that was in place," MAS said in its half-yearly Monetary Policy Statement.

"The width of the policy band and the level at which it is centred will be unchanged," it added.

Meanwhile, data from the Ministry of Trade and Industry showed that the Singapore economy expanded slightly more than expected in the first quarter of 2016.

The gross domestic product of Singapore expanded 1.8% in the three months to March compared to the same period a year ago, the Ministry said.

Monetary Authority of Singapore's private economists survey last month had said they expected the Q1 economic growth to be at 1.6%.

The 14 April data takes the details of the first two months only so the final number is likely to be a revised one.

The MAS survey had forecast the full year growth at 1.9% compared to the previous forecast of 2.2% and 2015 print of 2%. Any figure below 2% for this year will be a new 7-year low.

Singapore government has said it expects the economy to grow by 1-3% in 2016.