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Singapore Currency Signals Inflation Battle

Singapore Currency Signals Inflation BattleSingapore Currency Signals Inflation Battle

Singapore’s dollar is approaching the upper boundary of its trading band as speculation mounts that the central bank will boost the exchange rate for a second time this year to combat inflation.

The currency last week reached a record high against a basket of major trading partners’ currencies, based on HSBC Holdings Plc’s model of the Monetary Authority of Singapore’s managed float system. The local dollar has continued to hover in the upper half of the band even after the central bank shifted to a strengthening bias in April, Bloomberg reported.

Core consumer prices rose at the fastest pace in four years in July, increasing pressure on the central bank to act again. The MAS controls inflation by managing the exchange-rate: a stronger Singapore dollar lowers the cost of imported goods and vice versa. In April, it shifted from a neutral stance to seek a “slightly” faster appreciation of the local dollar.

Analysts estimated the move amounted to a gain in the currency of about half a percent per year.

“The latest round of core inflation prints continues to be firm,” said Terence Wu, an economist at Oversea-Chinese Banking Corp. in Singapore. “It may add to further speculation for another round of policy tightening by the MAS in October.”

Core inflation accelerated to 1.9% in July, the fastest pace since 2014. The MAS projected the measure will be in the upper half of its 1% to 2% forecast this year.

“The currency market has started to price in tightening,” said Toru Nishihama, an emerging-market economist at Dai-ichi Life Research Institute Inc. “I see the Singapore dollar weakening to around 1.39 by the year-end, but the decline could be slower if the MAS tightens.”

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