Even as Singapore brace herself for the slowest growth in three years, her Central Bank had to tighten monetary policy further to curb further inflation. As it is, local companies are already feeling the pinch from high prices and falling global economy. Now, more and more workers are complaining about income contraction as cost of living increase on a month on month basis. If such trends continue, Singapore could see many foreign labor leaving the country as working overseas becomes less viable, resulting in yet more stress on firms.
As such, we could still see USD/SGD rising in the short term due to inflation and also safe haven flows (as Singapore is holding AAA rating), but certainly the long term outlook for Singapore looks week and we could see SGD weaken significantly when the straw breaks the camel’s back.
Singapore is grappling with the elevated inflation that comes with years of economic growth and population expansion on an island smaller than New York City, with rising demand fueling record property and car prices. The country tightened monetary policy this year while neighbors from Thailand to the Philippines cut interest rates, spurring gains in the currency even as the government predicts gross domestic product will rise at the slowest pace in three years.
Singapore has the highest inflation rate among 27 economies with GDP of at least $100 billion and classified by the International Monetary Fund as advanced. The island’s inflation has exceeded 4 percent every month but one since November 2010, more than double the 1.9 percent average in the past two decades.
Consumer prices are forecast by the central bank to gain more than 4.5 percent this year and be in a 3.5 percent-to-4.5 percent range in 2013. “Persistent tightness” in the labor market will support slightly stronger wage increases in 2013, which will continue to be passed through to consumer prices, the central bank and Trade Ministry said last month.
Via – Bloomberg 
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