The Singapore dollar has reached a record $1.24 against its American counterpart after Singapore’s central bank revalued the currency. Singapore – an economy highly geared to external trade – controls monetary policy through the value of its currency rather than interest rates. It allows the dollar to fluctuate in a range around its average rate against a basket of trading partners’ currencies.
The bank doesn’t disclose the composition of the basket or details of its policy settings. But it made clear that it had re-centred the band upwards (thus effectively revaluing the dollar) to cool the economy by reducing import and increasing export prices.
No wonder. Growth reached 8.5% year-on-year in the first quarter. Inflation averaged 5.2% in the first two months of 2011, up from 3.5% in the third quarter of 2010. Inflation risks remain relatively high, says FAZ.net, given that there is little spare capacity and food and fuel prices have been rising.
Throw in the country’s comparatively solid finances and the upward trend in the currency looks set to endure. It could both rise within the band and be revalued further. Morgan Stanley sees it hitting $1.20 against the greenback by December 2010 and $1.15 by the end of 2011.