* Central bank says policy is reaction to global volatility
* Singapore increases slope of currency band
* Keeps centre of trading band unchanged
* Singapore dollar rallies to record high
* Says maintains policy as modest and gradual appreciation
*
SINGAPORE, Oct 14 (Reuters) - Singapore's central bank surprised
markets on Thursday by widening the band in which it lets the
Singapore dollar trade in order to cope with global market
volatility, propelling the currency to a record high.
It also increased the slope of the trading band but kept the
centre unchanged, sparking a rally in the Singapore dollar to as
high as S$1.2886 per U.S. dollar from S$1.30 before the
announcement and adding to broader selling of the U.S.
currency.
"The fact that they steepened the slope and widened the band
essentially is that they are optimistic of the outlook but they are
also aware of the volatility of the external environment in the
coming quarters," said Irvin Seah, an economist at DBS Group in
Singapore.
The decision came as the government reported a record
contraction in the export-reliant economy during the third quarter,
when GDP fell 19.8 percent on a seasonally adjusted annualised
basis.
Third-quarter GDP was 10.3 percent higher than the same
year-earlier quarter, the advance data showed, and the government
maintained its projection that 2010 growth would be between 13
percent and 15 percent following a strong first half.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Central bank statement [ID:nSGE69D00L]
Analysts reaction [ID:nSGE69B07W]
Q3 GDP falls record pace [ID:nSGC003776]
Singapore move triggers U.S. dollar selling [ID:nTOE69C07X]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Despite the dire third-quarter economic contraction, the
Monetary Authority of Singapore said "the balance of risks is
weighted towards inflation going forward."
It also indicated its policy response was a reaction to the
global currency tensions, an issue that dominated a weekend meeting
of the International Monetary Fund in Washington and which is set
to also dominate meetings of the G20 this month and in
November.
"The policy band will at the same time be widened slightly in
view of the volatility across international financial markets," MAS
said in a statement. [ID:nSGE69D00L]
Record low interest rates and weak growth in developed countries
have pushed global investors into emerging markets in search of
higher yields, driving up their currencies and asset prices.
In response, several governments have intervened to stop their
currencies rising too quickly or put measures in place, such as
taxes, to curb the capital flows, raising concerns that
uncoordinated actions could stunt a world economic recovery.
Singapore has also been hit by the inflows. The stock market
<.FTSTI> has rallied more than 11 percent this year and in
the first few minutes of trade on Thursday, rose 0.5 percent.
Foreign exchange traders said selling of the U.S. dollar picked
up after the Singapore news broke. The U.S. currency, which has
been trending lower since May as the U.S. economic recovery
falters, fell to a nine-month low against a basket of major
currencies. <.DXY>
"Selling momentum in the (U.S.) dollar seems to be much stronger
today than yesterday. The MAS's action also triggered more dollar
selling," said Minoru Shioiri, forex manager at Mitsubishi UFJ
Morgan Stanley Securities in Tokyo.
Singapore's monetary authority, which schedules two policy
meetings a year, sets policy by managing the Singapore dollar in a
secret trade-weighted band against a basket of currencies, instead
of setting interest rates.
In April, the central bank tightened policy by moving the centre
of its policy band upwards. It also shifted policy to a modest and
gradual appreciation for the currency from zero appreciation after
record economic growth in the first quarter.
It said it maintained the modest and gradual appreciation in its
latest policy statement.
For the latest news on the policy review and market reaction,
click on [SI-CEN-RTRS-LEN] (Reporting by Nopporn Wong-Anan; Editing
by Neil Fullick)
Source:
http://sg.finance.yahoo.com/news/UPDATE-1-Singapore-tightens-rsg-1933910349.html?x=0