Singapore’s Strong GDP Growth Prompts Rise in Singapore Dollar

Singapore GDP Rebounding Prompts Faster Currency Gains

Gross domestic product rose an annualized 9.9 percent in the three months through March 31 from the previous quarter, when it dropped 2.5 percent, the Trade Ministry said today. The median of 12 estimates in a Bloomberg survey was for a 6.8 percent gain. The central bank, which uses the exchange rate to manage inflation, said it will increase “slightly” the slope of the currency trading band and raised its inflation forecast.
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The Singapore dollar rose 0.4 percent to S$1.2491 against its U.S. counterpart at 1:05 p.m. local time today. It has gained 3.8 percent this year. The benchmark Straits Times Index added 0.7 percent.

The central bank also said it is restoring a narrower policy band for the currency, while maintaining a “modest and gradual appreciation.” It widened the trading band at its October 2010 policy review.

Obviously Singapore has a fairly rare situation with such limited space and a very strong economy. That leads to pressure of inflation as the wealth chases a somewhat limited supply (this is mostly focused on land – but that impacts many things). Given the large amount of international trade Singapore does one way to manage inflation is to let the Singapore dollar rise.

Many countries seek to lower the value of their currency to make it easier to compete globally. Singapore’s leaders have figured out that they wish to raise the standard of living by successfully providing very high value products and services.

Instead of seeking to compete by lowering the value of their currency they seek to increase the efficiency and effectiveness of their businesses. This is a great model. It is a challenge when businesses want easy quick fixes (decreasing the value of the currency is an easy quick fix that helps business – though it also less noticeable hurts individuals).

Singapore seems to acknowledge that their currency is going to increasing strengthen against other currencies. They just expect their businesses to improve enough to remain competitive even as this happens.