Apr 15, 2009
Singapore devalued its currency yesterday after its economy shrank far more than expected.
The city state’s gross domestic product shrank an annualised 19.7 per cent in the first three months of the year – more than twice the 9.6 per cent drop analysts had forecast and worse than the 16.4 per cent rate at which it contracted between October and December. The fall was the biggest since at least 1975.
Singapore-based banks DBS and UOB adjusted their GDP forecasts, predicting the economy would shrink at least 7.5 per cent this year.
The Monetary Authority of Singapore shifted the centre of the secret trade-weighted band for the Singapore dollar down to the market level of the exchange rate basket, effectively a devaluation.
“The re-centring translates to roughly a 1.7 per cent devaluation of the Singapore dollar on a trade-weighted basis,” said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. It was the first effective lowering of the currency band since July 2003, he said.
“The situation is really dire and the central bank’s policy will improve sentiment and help the economy,” said Vishnu Varathan, an economist at Forecast Singapore. The move “gives them the flexibility to weaken the currency now and steer it to strengthen when things get better”.
Reuters, Bloomberg