CPI + 5.2%

[freedom]

let's face it. current inflation is mainly domestic, rather than international, how could appreciating SGD tackle domestic inflation?

Appreciated SGD makes SG exports more expensive while imports become cheaper. With a smaller net export or current surplus, the economy contracts since more 'money' is going out while less 'money' is being returned from the sales of SG exports.

What you are saying will only work in a closed economy.

what I mean domestic is COE, property, HDB. does appreciating SGD help drive down price? as long as interest rate is low, SGD liquidity is strong, where do you think money will go? stay in banks? Absolutely not! It will certainly drive up all assets price. what's the main asset class in Singapore? properties.....

can SGD liquidity flow outside Singapore? is there any other country accepting SGD? so to SGD liquidity, Singapore is a closed economy.

---

honestly, IIRC, pre-2007, interest rate was always around 5% (borrowing).

http://www.tradingeconomics.com/singapore/interest-rate

I might be wrong but the historical chart shows the SIBOR not hitting 4% even in pre-2007.

Raising interest rates just to curb inflation will have an adverse effect if business conditions are not yet back to normalised optimistic terms.. and I don't think raising interest rates (even if it's possible) is the best to go given the current global conditions..

check Singapore 10Y bond yield

http://www.tradingeconomics.com/singapor...bond-yield

most mortgage are pegged more to 10Y bond yield than Sibor, I am not too sure.

[dzwm87]

what I mean domestic is COE, property, HDB. does appreciating SGD help drive down price? as long as interest rate is low, SGD liquidity is strong, where do you think money will go? stay in banks? Absolutely not! It will certainly drive up all assets price. what's the main asset class in Singapore? properties.....

can SGD liquidity flow outside Singapore? is there any other country accepting SGD? so to SGD liquidity, Singapore is a closed economy.

no offence but I think your concept might be a little incorrect. If increasing interest rates = curbing COE, property, HDB, then you are right though the terminology usage will be incorrect.

http://sg.finance.yahoo.com/news/Will-in...80492.html

maybe this will help. but I understand your concerns, something needs to be done for the rising inflationary concerns.

[Jacmar]

let's face it. current inflation is mainly domestic, rather than international, how could appreciating SGD tackle domestic inflation?

Disagree on this point. right now there is a global asset inflation and singapore is no different especially been an open economy. You cannot look at each class of asset in isolation. once property prices goes up there is a wealth effect filtered through the economy. those that make money either through direct property purchase or enbloc or just feeling rich because their property asset has appreciated can afford to splurge. that was what happened in USA only to suffer the pain when the property prices collapse. right now with all the printing in USA there is still no inflation as people's asset are decimated.

[freedom]

I agree that international 'hot' money plays certain role. But to blame the inflation on 'hot' money, I think it is a bit too far.

if interest rate is kept high, SGD liquidity can't be easily created as there is no loan demand. imagine if the loan interest rate is 5%, will there be so many property transactions? if there is no transactions, where is the loan demand? if there is no loan demand, money will be stuck in banks, which certainly will not create SGD liquidity.

low interest rate -> high loan demand -> high SGD liquidity -> domestic inflation

[dzwm87]

Disagree on this point. right now there is a global asset inflation and singapore is no different especially been an open economy. You cannot look at each class of asset in isolation. once property prices goes up there is a wealth effect filtered through the economy. those that make money either through direct property purchase or enbloc or just feeling rich because their property asset has appreciated can afford to splurge. that was what happened in USA only to suffer the pain when the property prices collapse. right now with all the printing in USA there is still no inflation as people's asset are decimated.

agree. in fact a main root for rising asset prices in Singapore was mainly due to the several combined reasons: (1) QE2 actions from the Fed, (2) Poor outlook concerning the Eurozone, (3) Risk of China property bubble bursting.

All these ended up in hot money being pushed to the other Asian countries. Another 'recipient' of such an asset was the Japanese economy - though the effect was largely injected to the appreciation of its Yen currency - seen as a safe haven amidst the risk of euro default and USD debt issues.

[freedom]

let's assume that it is international 'hot' money causes Singapore asset inflation. then what is MAS doing? appreciating SGD, which will only cause more 'hot' money coming in? Do you think 'hot' money will go to weak currencies?

[Jacmar]

let's assume that it is international 'hot' money causes Singapore asset inflation. then what is MAS doing? appreciating SGD, which will only cause more 'hot' money coming in? Do you think 'hot' money will go to weak currencies?

Well besides the appreciating SGD(can be done to a certain extent only), they fired off with the ABSD on foreign property ownership.that's why now you see locals are the ones that are flocking to the launches and the high end property mkt has grined to a halt. so next move is to deflate the mass mkt property slowly via lots of supply.once a correction is achieved then asset inflation will come down and the strong SGD will take care of the food commodities.however if US puts in QE3 then all bets are off and you should join the gold bugs.

[dzwm87]

Again, i think that is the incorrect way of seeing it. You are probably viewing it from the perspective that higher currency appreciation will drive more hot money - animal spirit. It is analogous to buying share price when it goes higher and hoping you can sell it off higher.

Unfortunately, though that is logical, it is not the only and perhaps is a small factor towards 'hot money inflow'.

Perhaps, you may view it this way - the effect of interest rates hike and currency appreciation. The former, like you said, can curb inflationary pressures through the means which you had stated. But moreover, interest rate hike also spur on a higher demand for SGD - leading to an appreciation in its currency (more returns on each dollar saved in SGD, assuming the rest constant). This then goes through the contractionary effect on net exports (as I had mentioned earlier).

Currency appreciation is one of the results of interest rate hike - hence, that is why people say FX & interest rates are the different side of the same coin. Since Singapore cannot influence the interest rates, they will have to resort to currency appreciation/depreciation.

Hope this paints the picture better.

[freedom]

let's assume that it is international 'hot' money causes Singapore asset inflation. then what is MAS doing? appreciating SGD, which will only cause more 'hot' money coming in? Do you think 'hot' money will go to weak currencies?

Well besides the appreciating SGD(can be done to a certain extent only), they fired off with the ABSD on foreign property ownership.that's why now you see locals are the ones that are flocking to the launches and the high end property mkt has grined to a halt. so next move is to deflate the mass mkt property slowly via lots of supply.once a correction is achieved then asset inflation will come down and the strong SGD will take care of the food commodities.however if US puts in QE3 then all bets are off and you should join the gold bugs.

maybe we are going to go through another round of over-built, property deflation, under-built, property inflation?

the point is that government should try their best to prevent run-away asset inflation, rather than try to deflate when inflation is out of control....

the life of ordinary people will be much easier that way.

---

Again, i think that is the incorrect way of seeing it. You are probably viewing it from the perspective that higher currency appreciation will drive more hot money - animal spirit. It is analogous to buying share price when it goes higher and hoping you can sell it off higher.

Unfortunately, though that is logical, it is not the only and perhaps is a small factor towards 'hot money inflow'.

Perhaps, you may view it this way - the effect of interest rates hike and currency appreciation. The former, like you said, can curb inflationary pressures through the means which you had stated. But moreover, interest rate hike also spur on a higher demand for SGD - leading to an appreciation in its currency (more returns on each dollar saved in SGD, assuming the rest constant). This then goes through the contractionary effect on net exports (as I had mentioned earlier).

Currency appreciation is one of the results of interest rate hike - hence, that is why people say FX & interest rates are the different side of the same coin. Since Singapore cannot influence the interest rates, they will have to resort to currency appreciation/depreciation.

Hope this paints the picture better.

please don't tell me that you think it is foreign money that created sub-prime in US rather than persistently low interest rate.

maybe Singapore can't influence FED's decision on USD interest rates, but at least MAS can control domestic SGD money supply through effective SGD interest rate control

[dzwm87]

It wasn't foreign money that created the sub-prime in the US, neither was it a persistently low interest rate. The Fed did a study on that and concluded that low interest rate was not the key contributing factor to the subprime. It was instead the practice of easy to obtain mortgage loans, where no documents were required when a loan was applied for. Moreover, it was in the midst of a long enjoyable period of the Great Moderation and people became complacent and had a greater risk appetite.

http://www.youtube.com/watch?v=GLoqPm1nYRU <--- one of Bernanke's lectures which covered on the GFC

maybe Singapore can't influence FED's decision on USD interest rates, but at least MAS can control domestic SGD money supply through effective SGD interest rate control

It is the control of money supply that leads to interest rate changes, not the other way round. Interest rates change from open market operations and not simply determining/saying how much interest rates should be.