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Thread: Why MAS may be wrong!

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    Thumbs up Why MAS may be wrong!

    The following posts and replies by PMET are taken from http://forums.condosingapore.com/showthrea...2462#post132462


    Originally Posted by CCR
    It is well known that MAS does not use interest rates as a monetary tool... They use age appreciation... Honestly if u ask me.... Interest rate here will not go up very high unless US unemployment rate goes down to at least 8% and even that, Singapore interest rates increase might not be that high as singapore is a financial centre and we are almost always flush with cash hence the banks a lot of money to lend so very competitive so must offer good rates or else money sitting in the bank vault earning nothing....
    The first sentence is half correct but the last sentence isn't true. This is not how it works. UIRP (uncovered interest rate parity) applies to Singapore's Monetary Policy so the first sentence is half correct. However, Singapore's interest rate can increase without the US increasing theirs but this is complicated. Due to the principle of UIRP, there should be no arbitrage in the relationship between any two currencies. Thus, an increase or decrease in interest rate directly affects the exchange rate, and vice versa. For more info, read this post (especially the 2nd, 3rd & 4th paragraphs): http://forums.condosingapore.com/showpost....p;postcount=547


    Originally Posted by amk
    hah, my favorite topic

    SOR is primarily a USDSGD forward implied rate. It's not really a "lending" rate. It's kind of like, you borrow USD, convert to SGD, then later convert back to USD to repay. It's almost like u r funded in USD. And it's very sensitive to fx. So when SGD appreciates, or is expected to appreciate, SOR drops. It's volatile like fx, but if you are brave, and firmly believe USDSGD will go down all the way, take SOR to capitalize on it. The thing is, USD can be affected not just by financials. Politics can make USD higher. For example the next time u see North Korea firing a missile, or Portugal in crisis, u will see USD shootup, which will make SOR shootup immediately. You have a very recent example. When Ben announced QE2, every one said USD will drop like hell. (Because any economics will tell you massive printing of money will devalue the currency) What happened instead is, because of the europe crisis, USD went up. At one stage USD was the best performer. Many houses lost money on this bet.

    SIBOR is really a lending *benchmark* rate. That banks agreed to offer each other on this rate. It closely tracks the money supply of SGD and overall rate environment. It's "stable" because it has much less fx component. But since SGD is by and large a trading currency, it's still inherently tracking the USD rates. Without USD rates going high, no way SIBOR can be significantly higher.
    Yes, the weakening USD is why Singapore property prices continue to appreciate in spite of tough government measures. In addition, foreign funds find it profitable to invest in Singapore because the SGD is expected to appreciate against the USD. Also, their returns will be higher than the interest rates charged for borrowing the cheap USD (carry trade). This causes a chain reaction which leads to a stronger SGD and lower interest rate. Read more here: http://forums.condosingapore.com/showpost....p;postcount=197


    INFLATION is not flattering in a growing economy, and Singapore has been swinging against inflation by revaluation of the Sing dollar against major currencies especially the US dollar and the euro. It is taking a double-barrelled monetary tightening with an appreciation bias for the basket of currencies that the Sing sollar is pegged to.

    Singapore'S economy grew by a whopping 14.7 per cent for the whole of 2010 and markets celebrated our city-state's leading role in Asia but such growth brought concerns such as long-term asset price inflation and depreciating worth of the Sing dollar. Arguably, a much stronger currency will save the worth of Sing dollar. The con, of course, will be the impact on competitiveness if the Sing dollar goes overboard to become too strong.

    Though the government must allow for a very gradual and sustainable appreciation of the currency to help fight inflation, it must be mindful that working-class Singaporeans will be the worst hit in any inflationary impact. Their earning capacity will not grow proportionately to the inflationary growth, and their dollar will buy fewer goods and sundries. They have less flexibility and elasticity in fiscal prudence or imprudence and if the Budget 2011 does not provide for them specifically, the working class may be steps behind in Singapore's growth story.

    Increasing tax reliefs to account for rising inflation and increased cost of living, exemption of essential items from GST, direct cash subsidies for conservancy charges or rental rebates, transport rebate for senior citizens and school-going children are probable remedies in Budget 2011 that could alleviate the temporal pains caused inadvertently by inflation. From the perspective of fiscal prudence, such measures will go a longer way towards helping the working class in Singapore. The blunt and brute force of any inflationary pressure can at least be lessened with a considerate Budget.

    Lim Soon Hock
    Managing Director
    Plan-B ICAG Pte Ltd
    Referring to the article titled Avoiding bubble trouble (http://forums.condosingapore.com/showthread.php?t=10681), the comment above is from one who doesn't understand the current situation (just like MAS).

    Why letting the SGD appreciate isn't the solution?

    When an economy grows normally without external influences (hot money), the demand is created internally thus inflation grows as people fight over a limited pool of resources. In this (normal) scenario, a stronger SGD makes everything cheaper (especially for imported products) and businesses slow because our products will be less competitive (economically).

    However, in a case of hot money entering Singapore which directly creates demand and indirectly stirs up inflation (think: red-hot flushed stock market, property bubble, business investments, high COE prices and etc), an appreciating SGD creates more appetite for investments based in Singapore.

    What happens when the hot money gets withdrawn in search of better returns elsewhere (when US/Europe recovers)?

    Bubbles will burst! Stock market, property market, CAR COE, business investments, etc.

    With regards to the above, there are two possible reasons why MAS is going with the "inflationary measure" (wrongfully allowing SGD to appreciate):

    1. Political - China and most of ASEAN has been labeled by US as currency manipulating regimes. Singapore, with more than 14% growth last year, may be obliged to allow its currency to appreciate against the USD, lest that it gets condemned and "loose its global status".

    2. Financial - The government may be enjoying the high taxes in the mist of all the inflation.

    Just my 2cents

    This post will be my last about the subject. Please help to spread the words around if you think that I'm right.

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    So what can we do in terms of investments this year to capitalise on MAS 'mistakes' (if any)?

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    Stay with low risk investments or hold cash? Wait for the eventual bust and show hand?

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    SGD fell from 1.20 (peak) to 1.30 now.

    Is inflation lower or higher now?

    How about 6 months time? What do you reckon?

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    I have a feeling the 10% ABSD is a pre-emptive strike before SGD gets de-valued! After SGD gets de-valued, singapore properties become cheaper to foreigners because of exchange rate gain and more attractive!
    Within 3 years, we should be seeing US$1:S$1.5+/- ?

    Quote Originally Posted by pmet
    SGD fell from 1.20 (peak) to 1.30 now.

    Is inflation lower or higher now?

    How about 6 months time? What do you reckon?

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    Quote Originally Posted by teddybear
    I have a feeling the 10% ABSD is a pre-emptive strike before SGD gets de-valued! After SGD gets de-valued, singapore properties become cheaper to foreigners because of exchange rate gain and more attractive!
    Within 3 years, we should be seeing US$1:S$1.5+/- ?


    For now, ABSD and devaluation of SGD is a serious combo to KO foreign investors. If you are holding US properties and know USD is going to devalue, what will you do?

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    MAS reading my thread?

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    Quote Originally Posted by pmet
    SGD fell from 1.20 (peak) to 1.30 now.

    Is inflation lower or higher now?

    How about 6 months time? What do you reckon?
    the region currencies are having a major correction against the USD, because USD was oversold.

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    Quote Originally Posted by pmet
    MAS reading my thread?
    Perhaps not by people in senior position, maybe watch by some MAS slacker tired of watching porn whole day.

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    Quote Originally Posted by avo7007
    Perhaps not by people in senior position, maybe watch by some MAS slacker tired of watching porn whole day.

    hahaha.. good one

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    Think don't even need to wait 3 years, by end of 2011 may be already US$1 : S$1.5x?

    Quote Originally Posted by teddybear
    I have a feeling the 10% ABSD is a pre-emptive strike before SGD gets de-valued! After SGD gets de-valued, singapore properties become cheaper to foreigners because of exchange rate gain and more attractive!
    Within 3 years, we should be seeing US$1:S$1.5+/- ?

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    Quote Originally Posted by teddybear
    Think don't even need to wait 3 years, by end of 2011 may be already US$1 : S$1.5x?
    on what basis are you making such prediction? Is CM5 so powerful that it can shift the exchange rate to that level?

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    Worst case scenario: EU fallout

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    Remember more than 3 years ago I mentioned about SGD vs inflation (& property prices)? Was the appreciating SGD effective in curbing inflation?

    Now, inflation will fall due to this: http://www.themalaymailonline.com/mo...onetary-easing


    Singapore dollar slumps as it joins global monetary easing

    PUBLISHED: JANUARY 28, 2015 10:43 AM

    http://www.themalaym...monetary-easing

    SINGAPORE, Jan 28 — Singapore’s central bank unexpectedly eased monetary policy, spurring the biggest slide in the currency since 2010 as the country joined global policy makers in shoring up growth amid dwindling inflation.

    The Monetary Authority of Singapore, which uses the currency as its main policy tool, said it will reduce the slope of the policy band for the island’s dollar in an unscheduled policy statement today. It also cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 per cent.

    “They’re essentially trying to stay ahead” by moving before the scheduled April policy review, said Song Seng Wun, an economist at CIMB Research in Singapore. “We’ve already seen so many central banks cut. For Singapore to do such an unscheduled move, it has to be against the backdrop of enormous uncertainty.”

    Singapore becomes at least the ninth economy to ease policy this month as global price pressures evaporate with an oil slump, after the European Central Bank announced quantitative easing plans while Canada, Denmark and India cut interest rates. More may come — the Bank of Japan chief said the country may need to get creative in any further monetary stimulus and Thai policy makers face growing pressure to lower borrowing costs.

    Currency sinks

    Singapore’s dollar sank as much as 1.3 per cent by 10.10am in Tokyo. The currency has fallen almost 6 per cent against the US dollar in the past three months, the third-biggest loser among 11 most-traded Asian currencies tracked by Bloomberg.

    “Since the last Monetary Policy Statement in October, developments in the global and domestic inflation environment have led to a significant shift in Singapore’s CPI inflation outlook for 2015,” the MAS said. “MAS has assessed that it is appropriate to adjust the prevailing monetary policy stance.”

    The central bank guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of the band. Singapore’s consumer prices fell for a second straight month in December.

    Singapore will keep a “modest and gradual appreciation” in its currency policy band, the central bank said. It made no change to the width and level at which it is centred.

    “This measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and appropriate for ensuring medium-term price stability in the economy,” the MAS said. — Bloomberg

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    See what happens when property and car prices fall. We're different because most our inflation is generated internally (property & car).

    When SGD up, inflation up. SGD down, inflation down.
    This is the basis of my argument.

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    Inflation fall, my chicken rice still cost the same.

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    Quote Originally Posted by Arcachon View Post
    Inflation fall, my chicken rice still cost the same.
    It might not affect your chicken rice because it's the famous Boon Tong Kee but if this drags on, I'm sure many will cut price. Deflation is not healthy and it takes time. Just as price doesn't rise overnight with inflation, deflation is the same.

    Look what happened in 1987 and 1997. USD chiong big time. Rupiah becomes toilet paper. Inflation fell. Familiar? Hehe!

    http://www.tradingeconomics.com/singapore/inflation-cpi

    Looks like this 10yr cycle is set to repeat itself again! It's gonna be 2017 soon.
    Last edited by pmet; 29-01-15 at 13:05.

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    Any chance of Kopi falling to 50c, $2 chicken rice, 250K 5room flat, 500K OCR 3BR, and maybe 1 to 1.5mil CCR 3BR?

    Time to pull out the suitcases?

    Quote Originally Posted by pmet View Post
    It might not affect your chicken rice because it's the famous Boon Tong Kee but if this drags on, I'm sure many will cut price. Deflation is not healthy and it takes time. Just as price doesn't rise overnight with inflation, deflation is the same.

    Look what happened in 1987 and 1997. USD chiong big time. Rupiah becomes toilet paper. Inflation fell. Familiar? Hehe!

    http://www.tradingeconomics.com/singapore/inflation-cpi

    Looks like this 10yr cycle is set to repeat itself again! It's gonna be 2017 soon.
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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    difficult lar.. what's goes up for some things, hard to come down. for eg, construction costs, salary, cars.

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    Quote Originally Posted by Kelonguni View Post
    Any chance of Kopi falling to 50c, $2 chicken rice, 250K 5room flat, 500K OCR 3BR, and maybe 1 to 1.5mil CCR 3BR?

    Time to pull out the suitcases?
    above all..chicken rice can!!

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    Can if you can unprint the money.


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    Ok, so you mean govt keep SGD HIGH so that inflation can be kept HIGH?

    All you people out there, you know who to blame when you are suffering from HIGH INFLATION and paying through the ROOF for HIGH PRICE INCREASES!

    Especially from those businesses in malls needing to pay $30-50 PSF or more and YET another CUT of 20% or more from their SALES by those mall owners like Capitaland, Keppel Land etc!!!!!!!!!!!


    Quote Originally Posted by pmet View Post
    This is the basis of my argument.
    See what happens when property and car prices fall. We're different because most our inflation is generated internally (property & car).

    When SGD up, inflation up. SGD down, inflation down.

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    SGD High to keep inflation low. Now we are deflation for 2 months so SGD Low to keep inflation high.

    http://www.tradingeconomics.com/singapore/inflation-cpi

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    Oh my gosh! Why need to keep INFLATION HIGH???

    Quote Originally Posted by Arcachon View Post
    SGD High to keep inflation low. Now we are deflation for 2 months so SGD Low to keep inflation high.

    http://www.tradingeconomics.com/singapore/inflation-cpi

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    Inflation need to keep at least 2 %, SOP. Japan is a good example of deflation.

    Inflation levels of 1-2% per year are generally considered acceptable (even desirable in some ways), while inflation rates greater than 3% represent a dangerous zone that could cause the currency to become devalued.

    http://www.investopedia.com/terms/i/..._targeting.asp

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    Only if deflation is sustained will prices start to drop lah. Look objectively, even if prices don't drop, it won't rise in the midst of a deflation. The inflationary factor in a booming market is now taken away. One less reason for prices to continue increasing. Just look at the malls today, are they increasing price? I still see $2 coffee at Geláre which is freaking cheap! Doubt they will start a $3 offer anytime soon. Just look at Japan, forever in deflation and what's happening to their property market? Nobody wants to buy! Nobody even wants to upgrade their CRT TV. Deflation is bad for the market but 5-7% inflation is nutcase.

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    Quote Originally Posted by teddybear View Post
    Ok, so you mean govt keep SGD HIGH so that inflation can be kept HIGH?

    All you people out there, you know who to blame when you are suffering from HIGH INFLATION and paying through the ROOF for HIGH PRICE INCREASES!

    Especially from those businesses in malls needing to pay $30-50 PSF or more and YET another CUT of 20% or more from their SALES by those mall owners like Capitaland, Keppel Land etc!!!!!!!!!!!

    LOL look at the growth of our GDP for the past 5 years. Inflation is not only an indication but also a factor of a growing economy. Albeit, yes, at the expenses of ppl's wallet. Well you might wonder why is SGD lower now, don't they want higher inflation? Now... this is to pave way for implementing 10% or 13% GST which will help increase inflation. Think they are trying to achieve equilibrium. Too much inflation will kill the cash cow

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