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Singapore dollar drops most since November after surprise easing
[SINGAPORE] Singapore's dollar fell the most since November after the central bank unexpectedly eased monetary policy to combat growing global growth threats to the trade- dependent economy.
The local currency dropped for a second day as the Monetary Authority of Singapore said in a statement Thursday it will seek a policy of zero appreciation against an undisclosed basket of currencies.
The MAS had a policy of modest and gradual appreciation since April 2010. The economy stagnated in the first quarter from the previous three months, when it expanded 6.2 per cent on a seasonally adjusted, annualized basis, the trade ministry also reported Thursday.
"There's been a deterioration of economic conditions since the last meeting," said Philip Wee, senior currency economist at DBS Group Holdings Ltd in Singapore.
"If things have already worsened why wait for October to ease?"
The Singapore dollar weakened 0.9 per cent to S$1.3626 against the US currency as of 8.35 am local time. That's the biggest decline since Nov 6.
This was the central bank's second unexpected decision in less than 16 months. It made an emergency policy change in January last year to combat the threat of deflation following a slump in oil prices.
Twelve of 18 economists surveyed by Bloomberg predicted the central bank would maintain policy Thursday, while the rest forecast it would ease.
The Monetary Authority guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of a currency band.
It doesn't disclose details on the basket, or the band or the pace of appreciation or depreciation. The MAS has two scheduled policy announcements a year, one in April and the other in October.
"We thought the hurdle was high for a shift to neutral," said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd in Singapore. "Although the MAS said that they have no intention to depreciate the domestic currency, I don't see this as necessarily the end of the easing cycle. If downside growth and inflation risks remain, then the next easing move would be a re-centering in October."