Wednesday 15 April 2009

Singapore devalues currency after GDP plunge

From The TimesApril 15, 2009

Singapore devalues currency after GDP plunge

Leo Lewis

Singapore’s central bank effectively devalued the city state’s currency yesterday as its Government warned that the global economic crisis would bring the worst economic plunge on record.

Singapore’s unprecedented contraction between January and March was described by analysts as “horrendous”. First-quarter GDP shrank by 11.5 per cent compared with a year earlier, far outstripping analysts’ predictions.

But worse was the Government’s dramatic revision of GDP forecasts for the full year, said traders in Singapore dealing rooms. Previous forecasts of a 5 per cent contraction were revised to one of between 6 per cent and 9 per cent. It was the third time forecasts have been adjusted in the past five months.

Economists rushed to recalculate their outlooks for Singapore and what one told The Times were the “diminishing prospects of an early recovery”.

The Trade Ministry said that recent, tentative signs of stability in, for example, the US housing market, did not yet amount to clear signs of a turnaround. The Monetary Authority of Singapore (MAS) — the central bank — said that “considerable downside risks to growth remain”. That was one of the reasons the MAS gave for easing monetary policy for only the second time since 2003.

The Singapore dollar moves within a trade-weighted band, which is set by the MAS. Moving the entire band lower, as the central bank did yesterday, leads to the currency undergoing an instant devaluation.

Singapore’s dollar advanced as much as 1.2 per cent to S$1.4965 against the US dollar, the strongest level in two months, after the MAS recentered the trading band. It said it does not plan to seek either appreciation or depreciation.

http://business.timesonline.co.uk/tol/business/economics/article6094207.ece


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