This Monetary Policy threw spotlight on the Exchange Rate Regime and its control system. The main aim of the policy was to manage exchange rate behavior in such way that it results in Price Stability and Singapore Economy can ride on a rapid growth path in a sustainable manner.
The policy clarified the defining features of Singapore Exchange Rate System, which are discussed below:
- The Singapore Dollar or SGD is valued against a number of currencies of the countries which have major business relations with Singapore Economy. On the basis of the magnitude of Trade Dependency on those economies, the respective currencies are given weightage. But, this whole system is revised on a regular basis to ensure that the Exchange Rates tally with the changing Trade Patterns.
- Monetary Authority of Singapore allows the Singapore Exchange Rate to fluctuate within a specified range. This is done with the objective of accommodating short term fluctuations in the Foreign Exchange Market. But, if the exchange rate fluctuates in such a way that it moves outside the specified range, then Monetary Authority of Singapore intervenes by buying or selling Foreign Exchange.
- Singapore Exchange Rate policy review is carried on generally after three months period. This is done to ensure that the short term instability of financial market are not causing sharp fluctuations in currency value.
- According to Monetary Authority of Singapore, the interest rates in Singapore Economy are largely influenced by interest rates in the foreign markets and also by Speculation of the Foreign Investors about future appreciation or depreciation of Singapore Dollar. It can be mentioned here, that studies reveal that investors Speculation was always about appreciation of Singapore Dollar as the domestic interest rates of Singapore Economy continued to lie below U.S interest rates.
