Amid rising inflation that is expected to reach all-time highs, the Monetary Authority of Singapore (MAS) recently announced its policy decision to boost the Singapore dollar.
The MAS mentioned that it will recentre the midpoint of the Singapore dollar’s nominal effective exchange rate policy band up to its prevailing level with no change to the slope or width of the band as a means to tackle global economic uncertainty and domestic inflation rates.
Right after the MAS made its announcement, the Singapore dollar jumped in value against major currencies such as the US dollar, the Japanese Yen, and the Malaysian Ringgit.
Source: Google, As of Aug 02, 2022 03:32 UTC
All Numbers Are to 3 Significant Figures
But what exactly does all this mean? How does this work? And what do these policy changes mean for Singaporeans?
Table of Contents:
- Introduction to Singapore’s Monetary Policy
- Economic Effects of an Appreciating SGD
- Impacts on Singaporean Consumers
Introduction to Singapore’s Monetary Policy
Singapore’s monetary policy is an exchange rate policy, meaning that it adjusts the value of the Singaporean currency to stimulate or discourage consumer spending on domestic products.
In the long run, the MAS aims for a slow and gradual appreciation of the Singapore dollar. It is believed that this would encourage economic growth and export competitiveness as a result of a low and stable domestic rate of inflation.
The way the MAS aims to do that is by having a ‘band’ for the value of the SGD. This is essentially a region at any point in time that reflects the maximum and minimum value the Singapore dollar can take to ensure that we remain a healthy economy.
Within this band, the Singapore dollar is allowed to fluctuate freely with the ebbs and flows of the foreign exchange market. However, if the value becomes too high or too low, the MAS will intervene and ensure that the value of the SGD remains in the decided region.
By stepping up the midpoint of the band up to the next level, the MAS intends to appreciate the SGD in time to come as a way to combat some of the problems we are facing right now.
Economic Effects of An Appreciating SGD
The decision to appreciate the Singapore dollar was taken to tackle economic conditions such as persisting high inflation, shocks to global commodity prices as a result of the Russia-Ukraine war, and uncertainty in international production and trade.
Slowing Down Inflation
One of the first economic effects of a more powerful Singapore dollar is that this will likely curb sky-high inflation rates. For many of you fearing the impact of inflation on your shopping, this is great news.
Singapore’s core inflation rate experienced a hike of 4.4% as compared to July 2021, reflecting strong price increases in a broad range of goods and services in Singapore. Particularly, the MAS points to spikes in poultry prices and higher fuel costs (among others) as reasons for our high inflation rates.
Mainly, a large part of Singapore’s high inflation is imported in the form of fuel, poultry, and other imported goods and strengthening the Singapore dollar will likely help address that.
With a stronger SGD, the same amount of Singapore dollars can now be exchanged for a higher value of foreign currencies.
|Currency||USD to SGD||EUR to SGD||GBP to SGD||SGD to JPY||SGD to MYR|
Source: Yahoo Finance
This then makes international imports cheaper, and we are able to use a favourable exchange rate to secure more cost savings. As a result, we may expect prices of fuel, transport, food, and other imported retail items to slowly return to normal.
Maintained Export Competitiveness
Economic theory would suggest that a stronger domestic currency would ultimately cause a fall in exports and potentially drops in economic growth.
Just as foreign goods become cheaper to locals, local goods and services become more expensive to foreign consumers as more of their currency would be needed to exchange for the same amount of local currency. As a result, foreign consumers might turn to other cheaper international substitutes, causing export revenue to fall and economic growth to face a downturn.
However, Singapore might be a special case.
Recently, the Economic Development Board’s latest survey of the manufacturing sector’s business expectations showed that Singapore’s exchange rate is not a key limiting factor for export orders. Mr Alvin Tan, the Minister of State for Trade and Industry, said in Parliament that the demand for Singapore’s exports is less sensitive to price fluctuations as our exports are “high value-added products and services”.
Furthermore, the fall in the cost of imported raw materials mentioned above could also lead to lower costs of production for our exports, allowing our exports to retain price competitiveness in the global trade industry despite an appreciating Singapore dollar.
Impacts on Singaporean Consumers
So what does all this mean for the individual Singaporean? Well, as of now inflation rates are still high, making domestic consumption difficult to muster. Everything local is now more expensive due to price increases and this inadvertently causes our real income to fall. As does our purchasing power.
But with an appreciating Singdollar, this opens doors for Singaporeans to enjoy other things at cheaper rates.
Go Online Shopping on Overseas Sites
If you’ve been eyeing items from online stores that do not allow you to shop in local currency, now is the time to jump on that bandwagon.
Buying cheap clothes and accessories from Taobao, exploring niche cameras and lenses from Japanese stores, getting your hands on handcrafted Scandinavian homeware — you can now do all this and more at cheaper prices.
It’s the same logic as previously explored, your same S$1 can now be exchanged for more foreign currency than before, giving you the opportunity to get the most bang for your buck.
For example, Taobao only accepts the Chinese Yuan (Renminbi) as this is the official currency of China. So when you shop there, you ultimately need to convert your SGD to CNY so as to place the order. Now because of a favourable exchange rate, you can shop on overseas sites with no stress.
Best Credit Cards for Cashback
To make the most of your spending when shopping, sign up for a cashback credit card, which is one of the best things you can do for yourself if you are an avid spender both domestically and internationally.
Citi Cash Back Card
One of the best cashback cards on the market, the Citi Cash Back Card, rewards average consumers with top rates in key categories–food and transport.
Cardholders earn up to 6% cashback on dining, and up to 8% on groceries and petrol (any station), in addition to saving up to 20.88% on fuel at Esso & Shell.
What’s more, consumers earn up to S$75/month, which is quite high by market standards, adding up to a potential S$900/year.
UOB KrisFlyer Card
If you are going to be spending the big bucks on shopping soon, consider getting a UOB KrisFlyer Card to boot.
In one purchase make full use of the card to shop till your heart’s content while also gaining 3 miles per S$1 transaction on online fashion shopping by spending at least S$500 with SIA brands within the year.
The annual fee of this card is also waived the first year, so you don’t have to worry about incurring costs of owning the card anytime in the foreseeable future.
Read Also: Best Cashback Credit Cards in Singapore 2022
Take a Vacation
Longing for a well-deserved break? Now is a better time than ever to take that trip you’ve been waiting for. COVID-19 restrictions are easing, borders are opening up, and the Singapore dollar is stronger so you can shop till you drop without breaking the bank.
Enjoy some of the best exchange rates in years for Asian countries like South Korea and Japan where S$1 is now exchangeable for 945KRW and 96JPY respectively, excluding exchange fees. If you’re taking a trip soon, convert your currency locally in the country you’re visiting to enjoy some amazing deals (hearsay you can exchange S$1 for 940 KRW at a few money converters in Myeongdong).
If you don’t have the time nor the energy to make such a huge trip, look to destinations in Southeast Asia like the white sand beaches of Krabi, the party town of Bali, or the lively streets of Johor Bahru for a short but sweet getaway.
Get Travel Insurance
Even though the place you may be visiting does not require you to have travel insurance, it is still a great idea.
In the day and age of COVID-19, the possibility of contracting the virus is still there and travel insurance protects you from incurring sky-high medical bills overseas, especially in countries like the US where treatment is known to be expensive.
Depending on your region of travel, past medical conditions, and other factors, the travel insurance best for you may vary, so head over to our roundup of the best and cheapest travel insurance where our expert team has curated some of the best products on the market.
Read Also: Best Travel Insurance in Singapore 2022
In a nutshell, a stronger Singapore dollar generally spells good things to come.
On a macroeconomic scale, it allows Singapore to reduce inflation hikes arising from imported inflation while keeping our exports competitive and economic growth steady due to cost savings. While we may not see these effects instantly, the appreciating Singdollar serves to address some problems our economy faces today.
For the individual Singaporean, a stronger SGD means inexpensive online shopping on overseas sites, cheaper holidays, and in general, more affordable global goods and services. In the meantime, domestic inflation still remains an issue, but with active steps being taken, hopefully not for much longer.
The post A Stronger SGD: What Does This Mean for Singaporeans? appeared first on The Independent Singapore News – Latest Breaking News