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MAS responds to US report, says it does not engage in currency manipulation

The logo of the Monetary Authority of Singapore (MAS) is pictured at its building in Singapore in this February 21, 2013 file photo.  REUTERS/Edgar Su/File Photo
MAS says it does not engage in currency manipulation. (PHOTO: REUTERS/Edgar Su)

SINGAPORE — The Monetary Authority of Singapore (MAS) said on Wednesday (29 May) that it does not engage in currency manipulation for export advantage.

The central bank was responding in a statement to media queries on the US Treasury Department report on macroeconomic and foreign exchange policies released on the same day, in which Singapore was added in a watchlist for currency manipulation.

Singapore made estimated net foreign exchange purchases of at least US$17 billion (S$23.5 billion) in 2018, or about 4.6 per cent of the Republic’s gross domestic product, the Treasury Department noted.

The report urges Singapore to cut its large external surpluses by undertaking reforms to trim its high saving rate, boost low domestic consumption and ensure that its real exchange rate is in line with economic fundamentals.

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Singapore's monetary policy framework, which is based on the exchange rate, has always been to target medium-term price stability and will continue to do so, the MAS said.

"MAS does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS' price stability objective," the central bank said.

MAS monetary policy is targeted at ensuing medium-term price stability given Singapore is a small open economy and a price-taker, rather than trying to boost export competitiveness per se, Selena Ling, head of treasury research & strategy, OCBC Bank said.

“Singapore’s monetary policy framework is unlikely to fundamentally change as a result of this report, but the nuancing may become increasingly important to address the US perception of currency intervention going forward,” Ling said.

On Singapore’s current account balance, the MAS stressed that it should be seen in terms of the country’s economic development over the decades.

Singapore recorded persistently large current account deficits of almost 10 per cent of GDP on average between 1965 and 1984, when its investment needs were greater than available saving, the MAS said.

As the economy matured, its investment needs eased while national saving rose, resulting in a current account surplus, the MAS added.

"MAS assesses that together with rising affluence that will raise consumption, Singapore's current account surplus will be reduced when public and private savings are drawn down for the needs of an ageing population," it said.

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