As a retiree, I was getting worried that PM, Tharman and gang had abandoned a Hard Truth that Dr Goh Keng Swee had laid down (and which has served us well, unlike some of Hary’s Hard Truths): Singapore’s exchange rate policy cannot be used as a tool to manage the country’s export competitiveness. It was a Diamond Hard Truth, engraved in granite, that the Singapore dollar is a key macro-economic policy tool to keep inflation under control.
Increasingly based on the comments of forecasters and the central bank’s actions, I had gotten the impression that the exchange rate policy was being used as a tool to manage the country’s export competitiveness.
Until last Friday that is, when the central bank, in a decision that surprised the market, decided not to ease its monetary policy in spite of slowing exports due to a weaker global economy. (The S$ has appreciated since January by 6% against US$.)
And the Trade and Industry Minister Lim Hng Kiang said on Monday, “The [central bank] recognises the need to strike the right balance between ensuring exporters are not unduly hurt by a stronger currency in the short-term, and capping underlying price and cost pressures in the economy. However, the exchange rate cannot be used as a tool to manage Singapore’s export competitiveness.”
Over the longer term, he added, competitiveness could only be achieved through higher productivity and innovation such as creating new products that the market demands. (Ya been hearing this rubbish since the 1980s but the new products and productivity never appear, bit like Godot)
(He could, and should, have added that S’pores exports require imports. Dr Goh used to emphasise that a cheap S$ means export costs go up because the prices of imports used to make the exports goes up. Minister Lim did not make this point. He should have reminded S’poreans of this Hard Truth.)
Mr Lim was responding to a question posed by an economic literate NMP, Tan Su Shan, who is MD of wealth management at DBS Bank. She asked if the central bank would “consider recalibrating its strong Singapore dollar policy and allow the Singapore dollar nominal effective exchange rate to appreciate at a slower pace”.
“The strengthening of the Singapore dollar is a key macro-economic policy tool to keep inflation in check over the medium term,” he added.
Finally, readers might want to send this BBC clip about local inflation fears to the junior minister who talked rubbish on inflation in August https://atans1.wordpress.com/2012/09/03/err-lee-what-did-you-say-abt-food-inflation/. It’s not juz me, it’s the BBC