Singapore Revalues Its Currency (HBC)

According to a report by the Financial Times, Singapore has revalued its currency to prevent any potential inflation after its economy grew by 13.1 % in the first-quarter. The decision by the Monetary Authority of Singapore has prompted a push up in most currencies in emerging Asia as traders believe that strong economic expansion in the region was accelerating, increasing the likelihood of fresh round of hike in interest rates.

On Thursday, China reported that its GDP grew by 11.9% in the first-quarter. But China’s robust economic recovery is also raising concerns that its economy could overheat. Already, the property market has started to show signs of overheating, with house prices continuing to rise sharply. There is pressure on the Chinese authority to appreciate its currency and raise interest rate. Analysts believe that robust economic growth would encourage central banks of Asian countries to tolerate appreciation of its currency in spite of concerns about losing export competitiveness against China, whose currency has been pegged against the U.S. dollar.

Earlier this week, the Asian Development Bank had warned that widespread intervention in the foreign exchange market by Asian countries’ central banks, to maintain their export competitiveness against China, could result in another financial crisis. According to Bloomberg, the Singapore dollar rose 1% to 1.3774 against the U.S. dollar, its biggest gain since May 2009. The South Korean won appreciated 1.1 per cent to 1,112.15 against the dollar, and Malaysia’s ringgit rose 0.7 per cent to 3.2010 against the dollar. According to analysts, other Asian currencies like the Indian Rupee and Taiwanese dollar are likely to face upward pressure as well.

Robert Prior-Wandesforde, Asia economist at HSBC (ADR) (NYSE: HBC) Singapore, said that announcements of strong GDP growth by Asian economies would lead to tighter monetary policy in many countries as central banks would try to prevent any potential inflation risks. South Korea’s jobless rate fell sharply in March to 3.8 % from 4.4 % in February. Meanwhile, Vietnam has reported that its GDP has grown by 5.83 % compared to year before. Wandesforde also said that Singapore might tighten its fiscal policy in the second half of the year, if inflation pressure continued to grow. “Overall, it is easy to get carried away with this amazing GDP release but we doubt the government will be panicked into any other policy actions, in the real estate market for example, in the near term,” said Wandesforde.