On Thursday, the Monetary Authority of Singapore (MAS) surprised market-watchers by allowing the Singapore dollar to rise. By widening the trading band in which the Singapore dollar was allowed to be traded in, the Singapore dollar was propelled to a record high.
A lot of people were caught out by this action and had questioned the timing behind it. With Singapore's economy shrinking by a jaw-dropping 19.8% quarter-on-quarter in the third quarter, many believed this is not the time to allow the currency to rise. For all the talk, Singapore’s economy is still an export-reliant one.
However, I don’t see the MAS having a choice in the matter. As I had posted a few days ago, several governments had intervened in the forex market to try and stop their currencies from rising. They tried and failed. With the Chinese refusing to publicly allow the yuan to rise, other Asian currencies are suffering. Singapore can also do what other countries did, and mostly likely failed as well.
The MAS probably see this and realized that any intervention in the market is an exercise in futility. I believe that if the MAS had its way, the Singapore dollar would not be at a record high. However Singapore just don’t have the financial muscle to stop the Singapore dollar from rising, so it had to widen the band to at least control the rise to an acceptable level.
I believe they made the right decision. If you can’t stop it, at least you must be in a position to control it. In the end, they made the best of a bad situation and it was the correct choice to make.