Friday, April 17, 2009

Weak economy may spur S$ easing

Tough times may prompt a weak Singapore dollar. Bloomberg

SINGAPORE’S economy likely contracted further in the first quarter amid a protracted global downturn, and economists say this will likely prompt the central bank to allow the local currency to continue to weaken.

A median forecast by 10 economists polled by Dow Jones Newswires tips Singapore’s gross domestic product to have contracted 7.5 per cent in seasonally-adjusted, annualised terms from the previous three months, compared with a record contraction of 16.4 per cent in the fourth quarter.

The poll also tips a 8.6-per-cent contraction from the corresponding period a year earlier, far worse than the Government’s 2009 GDP forecast of a decline between 2 and 5 per cent and the previous quarter’s 4.2 per cent contraction.

This also surpasses the 6.4-per-cent year-on-year GDP contraction in the third quarter of 2001, which the Department of Statistics said was the worst since 1976 — the earliest available date for quarterly GDP estimates.

The GDP data will be released tomorrow, the same day that the Monetary Authority of Singapore (MAS) will issue its policy statement.

While a weaker Singapore dollar cannot arrest the steep fall in external demand, a majority of analysts believe the central bank will likely lower its undisclosed exchange rate policy band to support the ailing economy. The MAS last eased policy in October by shifting to a neutral stance from its previous aim for the currency’s gradual appreciation.

Some analysts believe the MAS will take a stronger step and shift to an outright depreciation policy. If the Singapore dollar’s nominal effective exchange rate is near the band’s mid-point, they say lowering the band may not be enough. “Given the gravity of the times, surely bold action is called for,” said Westpac foreign exchange strategist Sean Callow. Dow Jones

From TODAY, Business - Monday, 13-April-2009


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