Stubbornly strong Singapore dollar signals new inflation battle

(Aug 28): 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.

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.

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