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MAS says it does not manipulate currency for trade advantage

It refutes US claims that Singapore is devaluing currency for trade advantage

Singapore's central bank asserted that the country "does not manipulate its currency for export advantage" after the United States added Singapore to its currency watch list together with eight other countries including China.

The US will monitor these countries to see if they are deliberately devaluing their currencies to gain a trade advantage against the world's largest economy.

Singapore's central bank strongly refuted the suggestion while economists said that the short-term impact on the Republic's economy will be limited. They also pointed out that, in fact, Singapore runs a trade deficit with the US.

In a statement yesterday, the Monetary Authority of Singapore (MAS) said that the exchange rate here is used to keep consumer price inflation low and stable.

"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," it added.

In the latest currency report released on Tuesday, the US Treasury tightened the criteria for its watch list and expanded its coverage from its 12 largest trading partners to those who trade more than US$40 billion (S$55 billion) with the US.

Countries with current account trade surplus equivalent to 2 per cent of gross domestic product will now be considered for the list, down from 3 per cent previously.

While the criterion of a trade surplus of at least US$20 billion with the US remains unchanged, what constitutes a persistent intervention in the foreign exchange market is narrowed to a net foreign currency purchase of more than 2 per cent of GDP in six out of 12 months down from eight out of 12 months.

Singapore having met two out of the three criteria was placed on the watch list.

The US Treasury in its report noted: "Singapore runs one of the largest current account surpluses in the world as a share of GDP at 17.9 per cent in 2018."

It also estimates that Singapore made net foreign currency purchases of at least US$17 billion last year, equivalent to 4.6 per cent GDP, more than double its threshold.

The report urged Singapore to undertake reforms to lower its high saving rate and boost low domestic consumption to help narrow its large and persistent external surpluses.

Although being on the watch list does not result in any immediate punitive measures from the US, economists say the markets may be a little jittery.

But overall, OCBC economist Selena Ling said the impact on the Singapore economy looks to be limited in the short-term.

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