MAS has maintained a policy of allowing a gradual, modest appreciation of the trade-weighted S$ within the policy band since last year (see Annual Report 1999/2000 Press Statement and February 2001 Monetary Policy Statement). This policy is based on our medium-term assessment of the economy, not short-term economic or inflation developments.

Recent M&A flows, arising principally from the DBS - Dao Heng and SingTel - Optus deals, have led to strong demand for US$ against the S$, which together with market expectations of these flows, have contributed to S$ weakness. However, they do not alter Singapore's economic fundamentals, and hence have no influence on the target band the MAS sets for the trade-weighted S$.

MAS had stated that it would intervene whenever necessary to dampen excessive S$ exchange rate movements, including movements arising from the funding of corporate M&A activities. In accordance with this policy, MAS intervened last week to keep the S$ within its policy band. MAS will continue to do so when necessary to offset any market impact of such corporate demand for US$ against the S$.