SINGAPORE (Dow Jones)--The Singapore dollar scaled new heights Thursday after the Monetary Authority of Singapore tightened policy, leaving analysts to guess where its new upper limit might be.
The U.S. dollar slumped to S$1.2481, from S$1.2553 just before the MAS announcement. The dollar fell as low as S$1.2453 just after the announcement.
"We're in a grey zone. The markets will just have to test to find where the new extremes are," said Selena Ling, head of treasury research at local bank OCBC.
The consensus view going into Thursday's MAS policy meeting was that there would be a tightening, but MAS threw a curve ball by announcing it had re-centered the Singapore dollar's trading band upward, but still below prevailing levels.
The move left markets with little way to gauge precisely where the center is, Ling said. MAS didn't widen the currency's trading band and also left the slope unchanged.
Thursday's announcement was less aggressive than the previous two MAS policy meetings, in October and April of last year. That led some economists to speculate that MAS believes inflation has peaked.
But first-quarter growth figures blew away earlier projections, with the economy expanding at an annualized 23.5%, compared to 3.9% in the last quarter of 2010.
That red-hot growth and the tighter monetary policy set the Singapore dollar up for further gains in coming months, and OCBC has targeted the U.S. dollar at S$1.2200 by year's end.
Singapore government bonds rose on the currency appreciation and overnight gains in U.S. Treasurys.
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