1. The recent rise in the US dollar and fall in the Euro reflect the diverging prospects of the US and Eurozone economies. While the US economy has been improving steadily, the pace of recovery in the Eurozone remains weak.

 

2. In line with global movements in the US dollar and the Euro, the Singapore dollar has depreciated against the US dollar in recent months, and appreciated against the Euro.  However, such movements in bilateral currency pairs are not expected to have a significant impact on Singapore’s economy.  Under Singapore’s exchange rate-centred monetary policy framework, the MAS manages the Singapore dollar exchange rate against a trade-weighted basket of currencies within a prescribed policy band, and does not focus on any specific bilateral currency pair.  This framework allows the Singapore dollar to be managed against short-term market fluctuations, while limiting the spill-overs that exchange rate volatility may have on the real economy. 

 

3. It is also important to note that the exchange rate is not used as a tool to directly manage Singapore’s export competitiveness in the short term.  Instead, demand conditions in our major export markets would have a more significant impact on Singapore’s growth prospects.  We expect the strengthening of the US economy, which underpins the appreciation of the US dollar, to bode well for the Singapore economy.

 

4. As for the impact of falling oil prices, the Singapore economy stands to benefit on the whole because we are a net importer of oil.  Lower oil prices will reduce electricity tariffs and fuel costs, directly benefiting businesses and consumers.  While lower input costs for our exporters due to falling oil prices may also help to enhance the price competitiveness of our exports, the impact is likely to be limited as other exporters will also benefit from lower oil prices.  However, it is important to note that any competitive advantage derived from lower oil prices will only be temporary in nature.  To enhance our competitiveness over the longer term, it is more important for us to press on with on-going efforts to help firms improve productivity and build up innovative capacity.