Today we travel to the other side of the world to review a small country which departed from a larger companion in 1965. But do not worry I am not looking at implications for Brexit today but noting the salvo fired this morning in the currency wars by the city-state of Singapore. Here is the statement from the Monetary Authority of Singapore or MAS.
MAS will therefore set the rate of appreciation of the S$NEER policy band at zero percent, beginning 14 April 2016.
This replaced this.
In October 2015, MAS kept the Singapore dollar nominal effective exchange rate (S$NEER) policy band on a modest and gradual appreciation path, but reduced its rate of appreciation slightly.
Which replaced this from January 2015.
MAS will therefore continue with the policy of a modest and gradual appreciation of the S$NEER policy band. However, the slope of the policy band will be reduced.
These policy moves represent a clear change from the previous policy of currency appreciation. This started in 2012 and was an anti-inflation measure. However back in January 2015 the MAS was noting this.
The depreciation of the S$ against the broad-based strength of the US dollar was partly offset by the appreciation of the S$ against the Malaysian ringgit, euro, and Japanese yen. Thus, movements in the S$NEER have been relatively muted compared to bilateral S$ movements against the major currencies.
So they were seeing a feature of the times as we note that in addition to its domestic neighbour we see that 2 of the main currency depreciators are on the list and on the other side the strong US Dollar was on the list too. Even effective or trade weighted exchange rates can be an example of “you can’t always get what you want” to quote the Rolling Stones. The switch today seems to be an example of trying “to get what you need” as Singapore sets out a plan which no longer includes a rising currency.
At this point let me pose the question, how many countries these days will accept a rising currency and where does that leave those who want theirs to fall?
Why have they done this?
If we look at the outlook for inflation and growth we see this.
CPI-All Items inflation will remain negative throughout 2016……..According to the Advance Estimates released by the Ministry of Trade and Industry today, the Singapore economy registered 0% growth on a quarter-on-quarter seasonally adjusted annualised basis in Q1 2016, following the 6.2% expansion in Q4 2015.
Ouch! That is quite a growth slow down is it not? Anyway in a familiar theme it is all apparently Johnny Foreigner’s fault.
The outlook for the global economy has dimmed since October…….held down by sluggish external conditions….a less favourable external environment……subdued growth in Singapore’s major trading partners.
Can we continue all blaming each other? That is a clear central banking theme these days as they all sing along with Lilly Allen’s album “It’s not me it’s you” Also I note the use of the current central banking buzzword “vigilant”.
Also you may note that there is no change to interest-rates. I suspect that having reduced its deposit rate to 0% the MAS has – wisely in my view – decided not to plunge into the icy cold world of negative interest-rates, for now at least.
Oh and there was a time where mild disinflation and a growth rate expected to be between 1 and 3% in 2016 would have been seen as an economic nirvana. How times change….
Never believe anything until it is officially denied!
From the MAS
This is not a policy to depreciate the domestic currency,
Singapore’s dollar slid 1.2 percent to S$1.3667 to the U.S. currency as of 6:51 a.m. in London, the biggest drop since Aug. 11.
Actually it also took a few other currencies with it as the phrase “competitive devaluations” came back into use.
New Zealand’s dollar tumbled 1.2 percent to 68.38 U.S. cents, the ringgit declined 0.9 percent to 3.9088 per dollar and Indonesia’s rupiah weakened 0.4 percent to 13,210.
Actually the South Korean Won fell by as much too.
Japan and the Yen
There is quite an irony in the Yen being described as an appreciator and there will be much chuntering into their sake at both the Bank of Japan and the Ministry of Finance at this description. But we know that in spite of this weeks decline the Yen at 109.2 versus the US Dollar is up some 8.5% on a year ago. They are of course still “watching” it although today’s spokesman seems to have been smoking something strong.
CHIEF GOVT SPOKESMAN: CAUTIOUS OF ONE-SIDED FOREX MOVES, READY TO TAKE APPROPRIATE STEPS IF NEEDED. (h/t @moved_average)
Oh and as of this morning the Yen has strengthened against many of its neighbours as they follow the Singaporean Dollar lower. Indeed the Yen weakened after comments like this. From Bloomberg.
Even if Japan wants a weaker yen, any government action would be futile as “Abenomics is nearing its best-before date,” said Eisuke Sakakibara, in charge of intervention at the Ministry of Finance from 1997 to 1999. He said an expansion of Bank of Japan stimulus would only temporarily slow the yen’s gains to 100 by year-end.
He picked the turn nicely.
Here the foreign exchange news gets swamped by the US Dollar exchange rate but the official communique at the beginning of this month said this.
On March 31, 2016, the CFETS RMB exchange rate index closed at 98.14, losing 1.50 percent from the end of February;
The new effective exchange rate has fallen from 100.94 at the turn of the year to 97.64 now so China’s leaders will have been reflecting on a gradual depreciation so far in 2016. This will be welcome as they struggle to keep the dream alive.
However whilst a 0.8% fall against the Singaporean Dollar to 4.75 may not be a major factor in Chinese calculations the fact that other currencies have fallen with it changes things. We will have to wait and see how they respond to this. They will also be noting that the Euro has drifted lower like the Yen this week as the currency environment shows a hint of ch-ch-changes.
The MAS has decided that a lower currency is something to which they can sing along to with The Cars.
I guess you’re just what I needed
I needed someone to feed
I guess you’re just what I needed
I needed someone to bleed
The environment has changed as they usually only make such a move in response to a recession and further food for thought is provided by the fact that at the end of last year economic growth was at 6.2%. Is that a new lower bound?
As to other devaluation/depreciation efforts we wonder in terms of album titles, Who’s next?
Still I guess those selling property near me in Nine Elms and at Battersea Power Station will be very grateful if new Far Eastern buyers emerge ahead of any future competitive devaluations. According to the mood music from there they may be sorely needed……
Large losses seem to have been accompanied by a large pay rise for the Chief Executive and this response raised a smile.
think of how much bigger the loss could have been if he wasn’t being properly incentivised! (h/t @RealFinney)