Use of Strong Currency to Manage Imported Inflation and Export Competitiveness
Prime Minister's OfficeSpeakers
Summary
This question concerns the government’s strategy to balance a strong currency for managing imported inflation against the competitiveness of exports, as raised by Mr Desmond Choo. Deputy Prime Minister and Minister for Finance Lawrence Wong stated that an appreciating exchange rate ensures medium-term price stability, providing a conducive environment for businesses to plan and grow. He clarified that recent weak export performance was primarily due to subdued external demand rather than currency strength, with growth now recovering alongside the global electronics cycle. The Minister emphasized that long-term competitiveness is anchored in productivity and innovation, allowing Singapore to move up the value chain and secure higher export prices. This approach is supported by the nation’s high-quality human capital and infrastructure, which ensure Singapore remains well-positioned to benefit from shifts in global trade.
Transcript
8 Mr Desmond Choo asked the Prime Minister how will the Government balance between using a strong currency to manage imported inflation and the competitiveness of its exports.
Mr Lawrence Wong (for the Prime Minister): In its April monetary policy statement, the Monetary Authority of Singapore (MAS) kept the trade-weighted Singapore dollar exchange rate on its gradually appreciating path. The continued strengthening of the Singapore dollar was assessed to be necessary to lean against imported and domestic cost pressures in order to dampen inflation and ensure medium-term price stability. Low and stable inflation provides a conducive environment for businesses to operate and plan for the long-term, underpinning sustainable growth of the Singapore economy. Higher inflation, in comparison, will raise business costs, including for our export industries.
MAS calibrates its exchange rate policy so as to ensure medium-term price stability and sustainable economic growth. Singapore's weak export performance over most of 2023 was mainly due to subdued external demand, rather than a strong Singapore dollar. This is borne out in the Economic Development Board's Business Expectations of the Manufacturing Sector survey, which showed that the Singapore dollar exchange rate has been a minor factor affecting manufacturing firms' export orders. Notwithstanding some monthly volatility, the global electronics cycle has experienced an upturn and Singapore's export growth has, likewise, picked up from the trough in mid-2023. Over the cycle, Singapore's total exports and production have broadly tracked that of other trade-dependent economies in the region.
Over the medium-term, Singapore's export competitiveness will have to be anchored by our ability to be more productive and innovative compared to other economies. This means moving up the value chain, becoming more efficient and securing higher prices for our exports in world markets. These capabilities will be underpinned by the quality of our human capital, infrastructure, connectivity and institutions. Our strengths in these areas place Singapore in a good position to benefit from shifts in global production and trade and will ensure Singapore's long-run competitiveness.