MAS: Currency Appreciation can’t fight against “Wall of Money”

The Monetary Authority of Singapore (MAS) Managing Director Ravi Menon warned that Asia remains vulnerable to a “wall of money”, alluding to the huge inflow of foreign funds that is entering Asia as global investors seek safer havens to park their funds in.

Menon conceded that exchange rates alone is not enough to prevent asset bubbles from forming, especially in the property market. He suggest that targeted measures such as limiting credit, preventing access and tax impositions may work better than simply raising exchange rates. He cautioned increasing exchange rate alone, saying “In fact, strong and sustained exchange-rate appreciation may well attract even more capital inflows.”

Is this a tacit admission that MAS may not be looking to increase SGD’s trading band anytime soon?

In its latest attempt to cool property prices, Singapore has boosted stamp duties and tightened credit terms on foreign buyers. From the sound of the head Central Banker, it seems that MAS may not be looking to raising SGD to challenge the rise in assets, which is understandable considering that exporters from Singapore have been suffering since USD/SGD fell from 1.8 5 years ago to current 1.23.

Weekly Chart

As covered previously, SGD may find further weakening hard to sustain, as the failure to hold onto 1.24 has shown. On the other hand, true bullishness in SGD may also be unlikely especially after what Menon has said. Regardless, should the “Wall of Money” continue push itself into Singapore, we could still see SGD go higher in 2013.


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