The unexpected move by the Monetary Authority of Singapore (MAS) to tighten its monetary policy boosted Asian currencies, including the ringgit, and intensified speculation that China would let the yuan trade higher.
“The shift to a tightening stance should be taken as a sign of greater determination to decisively pre-empt inflationary pressures and likely stronger (Asian) currencies in coming months,” he said.
In my opinion, I believe that Singapore's move might be a shrewd one. Why do I say so?
If you guys are following the Toyota's news, you should know that it is assuaged by a mile right now.
After the Toyota incident broke out, there was a lot of criticisms and denigrating comments against the company. Many were extremely unhappy and they cursed and swear at Toyota for putting their customers under such precarious circumstances.
They neglected the problems with the brakes and they did not even report the incident to the respective authorities.
But that's not the point. The point is that many other automobiles start to play on the defensive side. They followed suit and recalled their vehicles once a complain has been filed for fear that they will be attacked vigorously later on if they leave the matter untouched.
But the irony here is that, these automobile makers did not have a huge negative impinge on their reputation even though their mistake is on the same level as compared to Toyota's.
Rather, the public accepted their moves and gladly co-operated with the recall.
So the question is, why did the public not scream at the other automobile makers? The reason is lucid. It's because the hype is already over, the public have already exhausted all their energy on Toyota and they can't be bothered anymore. Thus, they are now merely going with the flow. No matter how big a deal is, it will definitely be over after some time. That is why people say that, "Everything will heal in time."
This is synonymous to Singapore's strategy. They are merely hiding behind China's yuan (which is like Toyota). There has been a lot of scrutinization surrounding China's yuan. People are speculating all over the place and they are almost 100% sure that it will appreciate in no time.
Either way, someone needs to start the ball rolling because the economy is recovering already. It's in the convalescent stage right now. The interest rate will rise and currencies will become stronger.
That's an undisputable truth and it is inevitable.
By prognosticating the unhappiness that will spring among the public, Singapore took this opportunity to enter the game. They can then hide behind China and no one will realise.
As you all know, Singapore is extremely reliant on exports because we are a trade dependent country. So why does Singapore take this huge risk to tighten the monetary policy?
Simply because they know clearly that it will not affect their export market at all. The slight increase in the strength of the Singapore dollar will be easily overlooked and our export markets will not drop, it will be de facto be inelastic in nature, all thanks to the hype around the yuan.
Soon, many will follow suit and then the level of impact of this move will plummet until the point where people think that it's perfectly normal to raise the rates.
Hence, this is the best opportunity for Singapore to obscure the fact that their currency is getting stronger, for the majority will not scrutinize the rise.
Instead, they will embrace it.
Thank you
Credits -thestar
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