SINGAPORE: When asked whether the Singapore dollar should be allowed to appreciate at a faster pace to tackle inflation in Parliament on Wednesday, Minister for Trade and Industry Lim Hng Kiang noted that Singapore cannot totally insulate itself from the effects of global prices.

He said the Monetary Authority of Singapore (MAS) did allow the currency to appreciate at a faster rate during its last policy review in October 2007 amid uncertainties in external economic and financial markets.

Although such move helped to counter inflationary pressure, Mr Lim, who is also the deputy chairman of MAS, reminded the House that there was a limit to how much the Singapore dollar can appreciate without hurting growth.

The other question raised was whether interest rates can be used as another tool to manage Singapore's monetary policy.

Mr Lim said, "Studies by MAS over the years have shown consistently the exchange rate has the most significant impact on growth and inflation than interest rate. Once we have an open capital account, the monetary policy can only influence either the interest rate or the exchange rate but not both."

"If you try to have an exchange rate at a certain level, then you still want to raise (the) interest rate… what will happen is you will attract a lot of inflow of foreign capital and your exchange rate (will) strengthen far beyond… (the) intended level," he added.

Mr Lim also rejected MP for Ang Mo Kio GRC Inderjit Singh's view that Singapore has been in a negative interest rate environment for some years.

He said up to the middle of last year, Singapore's inflation rate was lower than its interest rate, and it was only late last year that nominal and real interest rates fell. But real interest rates, when measured against long-term inflation expectations, have not fallen as significantly.

Mr Lim added that periods of negative real interest rates in Singapore have typically been shortlived and reflected cyclical factors in the global economy.

MAS will also monitor the developments closely in its next review in April to determine the best policy going forward, he said. - CNA/ac