The Singapore dollar is edging towards a five-year high with the Monetary Authority of Singapore (MAS) revaluing it today to fight inflation.
Singapore's central bank reversed its "zero per cent appreciation" policy introduced one and a half years ago to keep the currency in check and help exporters during the recession.
The Monetary Authority of Singapore (MAS) announced today it will "re-centre the exchange rate policy band at the prevailing level" — the Singapore dollar is currently trading around S$1.38 against the US dollar — and allow a "modest and gradual appreciation".
Inflation is expected to go up to 2.5 to 3.5 per cent this year on the back of faster than expected economic growth.
The MAS decided to let the Singapore dollar rise as the economy grew more than expected, by 13.1 per cent in the first quarter compared to a year ago. The economy is now expected to grow by 7 to 9 per cent this year, up from 4.5 to 6.5 per cent predicted in February.
The Singapore dollar has already risen to pre-crisis levels. It is trading close to levels last seen between April and July 2008, when it rose to a five-year high, as you can see from the chart (below) going back to April 2005.
Still, the Singapore dollar is more than 20 per cent undervalued against the US dollar, the Financial Times reported yesterday, quoting the Asian Development Bank.