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Strengthening the Sing Dollar will extracts more funds coming in to enjoy the appreciation despite low interests rate.
1. Money will flow into Stocks and Property. Property prices up, causing inflation ?
2. People who works oversea remits money due to the continuous strength, causing more inflation ?
3. Companies who expanded oversea or export may see weaker result once converted into Sing dollar. Lower Income ?
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normally strong currency is associated with high interest rate to suppress investment urge, e.g. Australia. but in Singapore, we have a strong currency and low interest rate. wow, if asset is not inflated, there must be something very wrong. lol.
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".....Can anyone imagine our population doubling or tripling in the next 30 years?....."
I happen to read in ST forum this morning that Mumbai is a city that is geographically almost the same size as sg, but with four times as many people.
So no need to imagine, just pay Mumbai a visit.
Of course I disagree with the indiscriminate rate of population increase that we had experienced the last few years.
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that is why ABSD is announced jointly by Khaw Boon Wah and Tharman, Tharman knows this will occur thus the 10% duty slapped on foreigner. With ABSD (10%) and ASSD (curbing turnover of property), hot currency will try to avoid Singapore's property market as it is an hidden interest-rate targeted at them. On the other hand, Hong Kong seemed happy to welcome them into their property market.
As for Singaporean specuvestor, the ABBD and ASSD should also have make them think twice about it. Thus, demand for property is rather close to actual demand of house ownership by our fellow Singaporean, especially the price of HDB after the restriction on HDB ownership. Foreigner can never own HDB in the first place
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24-04-2012, 11:05 AM
(This post was last modified: 24-04-2012, 11:26 AM by freedom.)
(24-04-2012, 10:57 AM)shanrui_91 Wrote: that is why ABSD is announced jointly by Khaw Boon Wah and Tharman, Tharman knows this will occur thus the 10% duty slapped on foreigner. With ABSD (10%) and ASSD (curbing turnover of property), hot currency will try to avoid Singapore's property market as it is an hidden interest-rate targeted at them. On the other hand, Hong Kong seemed happy to welcome them into their property market.
As for Singaporean specuvestor, the ABBD and ASSD should also have make them think twice about it. Thus, demand for property is rather close to actual demand of house ownership by our fellow Singaporean, especially the price of HDB after the restriction on HDB ownership. Foreigner can never own HDB in the first place
investment urge driven by market liquidity is unlikely being suppressed by policies such as ABSD and ASSD. Though foreigners can't or is not willing to buy properties directly, they are providing cheap finance for locals to buy more investment properties.
if it is not residential properties, some other asset classes will soon get inflated, e.g. COE, industrial/commercial properties?
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http://en.wikipedia.org/wiki/Impossible_trinity
you can read up on the impossible trinity above. Therefore, if Singapore chooses to use interest rate policy, there will not be free capital flow. Reason why free capital flow is needed is Singapore is a knowledge-based economy, she wants to be a financial centre. This is also why we are the world's 4th largest Forex centre.
Therefore, the choice will be to choose between exchange rate or interest rate. As I have mentioned earlier, interest rate policy will have a limited impact due to various reasons from high import demand, high saving rate, banks with healthy balance sheet and low leverage as well as FDI.
Singapore's interest rate has thus traditionally been following that of the US interest rate but at a slightly lower rate. Unless Bernarke stops its low interest rate till 2014 pledge, Singapore's interest rate will continue to say low until after 2014.
Choice is a fundamental concept in econs, you can never have your pie and eat it all by yourselves. In Singapore's situation, the government chooses exchange rate + free capital flow over interest rate and this has been doing well for us until recently.
Rise in COE prices has mainly come from the sharp supply cut which will get worse in August. This is of course inevitable, but too bad that the government has chosen to let car population expands at 3% annually until they realise that there's simply not enough roads for cars.
As for properties other than housing, it is none other than REITs who're pressured to attain higher DPU for us, the investor.
Cheap liquidity does has its part in driving inflation, but to curb liqudity where recession seemed to be looming is not a very wise move. Of course, to wait till a bubble to burst will be the worst. Since Singapore has already chosen to forego interest rate policy, she can only do so through supply and demand policies
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Is Singapore really restricted by the impossible trinity? I don't think so.
1. Singapore has free capital flow
2. SGD exchange rat is not fixed, at least it is not totally fixed.
3. Singapore should be able to have independent monetary policy, or at least MAS should be able to have some flexibility in its monetary policy.
So what I would say is that Singapore can have relatively flexible exchange rate policy and at the same time, implements rather independent internal interest rate policy.
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24-04-2012, 12:05 PM
(This post was last modified: 24-04-2012, 12:05 PM by shanrui_91.)
While Singapore's exchange rate is not totally fixed, it is pegged to a trading range. The problem is that when Singapore raises its interest rate, hot money will start to flow in to take advantage of the high interest rate and this will create a huge demand for SGD. As MAS wants to slowly appreciate, it has to start to defend itself against massive speculation. For Singapore, it should be able to defend against it as we have a massive hoard of foreign reserve. However, it will still not be a smart move to become open to such attack. After all, George Soros has succeeded in attacking the GBP and Thai Baht before.
Singapore only lacks the ability to control interest rate. Interest rate are being controlled through 2 main channels - Bank (Reserve, Repo rate and e.t.c) as well as Government Bond. Effective control over bank is not as strong as our Bank can still function even with a curb in liquidity due to their strong balance sheet.
As for government bond, there is really not an active secondary bond market in Singapore. The day where we start discussing and debating about buying or selling SGS on Valuebuddies will be the day where the government might consider pursuing an interest rate policy. That will not be a reality anytime soon as trading of SGS has only been implemented not long ago and the SIP is likely to make it harder to happen
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(24-04-2012, 11:47 AM)freedom Wrote: Is Singapore really restricted by the impossible trinity? I don't think so.
1. Singapore has free capital flow
2. SGD exchange rat is not fixed, at least it is not totally fixed.
3. Singapore should be able to have independent monetary policy, or at least MAS should be able to have some flexibility in its monetary policy.
So what I would say is that Singapore can have relatively flexible exchange rate policy and at the same time, implements rather independent internal interest rate policy.
Exactly!
Thats why Singapore or any country follows è impossible trinity concept.
Its a econ101.
Sg has free capital flow & monetary policy. Thus cannot have pegged exchange rate.
If no impossible trinity, then it just defeat è economic concept.
Hmm, knowledage as a PT yr2 econ student.
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24-04-2012, 01:26 PM
(This post was last modified: 24-04-2012, 01:27 PM by freedom.)
to make the exchange rate centered monetary policies to work perfectly, I think, one condition is that the trade should be well balanced, that is, money will come in and money will go out. If aggregated money flow towards one direction for a persistent long period, the balance will be completely broken, which can easily cause catastrophic disaster. that means, if previously money is flowing in and you counter by appreciating the currency, it will cause more money coming in(Is now a perfect example of this?). and if previously money is flowing out and you counter by depreciating the currency, it will cause further money outflow(I think 1997 AFC is a good example).
not advance economy trained, my own speculation only. please correct me if i am wrong.
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