Sing dollar expected to strengthen

Sing dollar expected to strengthen

The Singapore dollar, which has risen 11 per cent in the past one year, can climb even higher. Analysts said it could reach 1.20 against the US dollar by the end of this year.

For some exporters, it is a problem. In a survey by the Singapore Business Federation, 52 per cent of Singapore companies have cited the stronger currency as a challenge this year.

But market watchers said the Monetary Authority of Singapore's (MAS) top priority is to tame inflation. And to do that, the central bank may allow for faster appreciation of the Singapore dollar when it reviews its monetary policy in April.

Last year, the MAS allowed the Singapore dollar to appreciate at a rapid clip to pre-empt rising inflation.

With inflationary pressures in Asia continuing to mount, the MAS and other central banks are seen maintaining a hawkish stance, which means higher interest rates as well as stronger currencies.

China's central bank raised interest rates for the third time in four months on Tuesday, and on Wednesday morning, it fixed its US dollar-yuan reference rate at a record high. That drove Asian currencies higher on Wednesday.

Thio Chin Loo, senior currency strategist at BNP Paribas, said: "That will lend a hand to Asian currencies because before the China rate hike, Asian currencies were doing better already from a weaker USD in general, but also the market seems to be rewarding currencies where central banks are seen to be trying to tackle inflation."

A strong dollar, which is Singapore's main weapon to deal with inflation, makes locally manufactured goods more expensive in Western markets.

But with other central banks in the region also tightening policy, most Asian currencies may rise in sync. And that, experts said, will protect Singapore's export competitiveness.

David Cohen, director of Asian economic forecasting at Action Economics, said: "They are always going to be nervous about a potential loss of competitiveness, but as long as China continues to allow some appreciation, the others would not feel quite so vulnerable, and at the same time, as long as the growth continues strong, maybe they will feel a little more willing to tolerate appreciation."

Economists said Singapore's non-oil domestic exports will record a healthy 12 per cent growth this year. While that is half of last year's growth, the export performance will still be in line with global economic expansion, which is threatened by sovereign debt worries in Europe, uncertain recovery in the US and tensions in the Middle East.

-News courtesy of Channel Newsasia-