SGD Appreciation

[revhappy]

What do you guys think of the recent appreciation of the SGD, especially against the US $. At an exchange rate of 1.2 is it doing more good or bad to Singapore? My own assessment is since Singapore is an export oriented country it must be hurting the exporters big time, yet MAS is appreciating its currency just to reign in inflation, doesn't make sense to me.

[BillyB]

I think it's a good policy and well thought out;

1. It protects the Country from inflation, because Singapore is by nature an importer. The SGD remains relatively strong and the effects of inflation are lessened.
2. It creates a natural balance towards demand for Singapore based goods and the supply of resources.

From a consumer perspective if you are looking at pure FX, then it obviously has adverse effects against weaker currencies, but from a long-term economic view to ensure the Country remains growth focussed, I think it's a well devised and executed policy.

[sammone40]

I'd look at a price basket and think that GBP/SGD 0.6 is a better target rate but if the governments keep printing (recent currency wars) then maybe not and exports become more valuable.

Seems to me organisations trading in SG of which the government gain their maximum revenue(unverified?) find it difficult to do business with foreign partners if they bill in an appreciating SGD.

Also if you look at gold appreciation in dollar terms it is good but then in sgd terms not so much so seems sgd has actually retained value rather than appreciated

[sammone40]

BillyB - looking at the GDP over the past 20 years (50bn -> 300bn) I'd say SG has become a net exporter rather than net importer by a long way.

Especially considering corporate/financial/trading fund remittances?

[aster]

The economy is letting go of manufacturing and focusing strongly on tourism. As long as people keep coming in and spending money, I don't think there will be any concern about a strong SGD. On top of that mega-price-hikes don't seem to have hurt the sector one bit...

http://asiapress.hotels.com/sg/2011/03/ ... y-in-2010/

[hougangpeterlee]

I think it's a good policy and well thought out;

1. It protects the Country from inflation, because Singapore is by nature an importer. The SGD remains relatively strong and the effects of inflation are lessened.
2. It creates a natural balance towards demand for Singapore based goods and the supply of resources.

From a consumer perspective if you are looking at pure FX, then it obviously has adverse effects against weaker currencies, but from a long-term economic view to ensure the Country remains growth focussed, I think it's a well devised and executed policy.

Spot on, Singapore is an importing country and a higher SGD increases the demand of Singaporean made goods.

Very well thought of. Great post.

[BillyB]

BillyB - looking at the GDP over the past 20 years (50bn -> 300bn) I'd say SG has become a net exporter rather than net importer by a long way.

Especially considering corporate/financial/trading fund remittances?

I think you'll see the economy slowing down somewhat over the next quarter or so - there may even be, 'technically', a recession on the cards. MAS will surely intervene very soon to try to curtail fund inflows before it starts to have an even greater negative effect on the economy?

I would have thought Singapore is quite well balanced between imports and exports. Exports will be higher of course as the Country tends to be a transformation state - importing in the raw form and exporting as finished goods.

[ScoobyDoes]

The economy is letting go of manufacturing and focusing strongly on tourism. As long as people keep coming in and spending money, I don't think there will be any concern about a strong SGD. On top of that mega-price-hikes don't seem to have hurt the sector one bit...

http://asiapress.hotels.com/sg/2011/03/ ... y-in-2010/

There is very healthy manufacturing here in the Offshore and O&G sectors in addition to the problematic electronics and pharma. The high SGD will cause some problems in taking in new orders as the USD tender pricing for the offshore sectors will be disproportionally expensive.

With tourism the high SGD will cause a problem. The other safe haven in Switzerland as no visitors...... and those few that do go generally head from China because a) they have money and b) the RMB is also higher.

There are two choices for SG, a high currency or higher interest rates. With higher interest rates I fear for the number of defaulters in the mortgage sector, with the knock-on effect of a housing collapse like that seen in the US so a balance has to be struck with care.

[BillyB]

The economy is letting go of manufacturing and focusing strongly on tourism. As long as people keep coming in and spending money, I don't think there will be any concern about a strong SGD. On top of that mega-price-hikes don't seem to have hurt the sector one bit...

http://asiapress.hotels.com/sg/2011/03/ ... y-in-2010/

There is very healthy manufacturing here in the Offshore and O&G sectors in addition to the problematic electronics and pharma. The high SGD will cause some problems in taking in new orders as the USD tender pricing for the offshore sectors will be disproportionally expensive.

With tourism the high SGD will cause a problem. The other safe haven in Switzerland as no visitors...... and those few that do go generally head from China because a) they have money and b) the RMB is also higher.

There are two choices for SG, a high currency or higher interest rates. With higher interest rates I fear for the number of defaulters in the mortgage sector, with the knock-on effect of a housing collapse like that seen in the US so a balance has to be struck with care.

If fund inflows continue into Singapore - which inevitability they will because its safe - interest rates will have to rise to curb inflation. But I doubt there will be anything more than a slight rise in defaults, as the Asian banks are more conservative toward risk with more diligent lending. Plus, people don't tend to and are not able to live above their means as much, and as easily, as they are in the West.

From a tourism perspective, the strong SGD is making the Country very expensive but I believe the government are more concerned about insulating the economy and the locals from inflation rather than the adverse effects of the strong dollar on the tourism sector.

It is a balancing act though.

[aster]

There are two choices for SG, a high currency or higher interest rates.

If they start raising interest rates, won't the currency appreciate?

As far as tourism is concerned, I can't see any negative implications yet of a strong SGD and the world's largest price-hike in the hotel industry. Logic suggests it should have had a negative impact on tourism, but apparently not...

[ScoobyDoes]

There are two choices for SG, a high currency or higher interest rates.

If they start raising interest rates, won't the currency appreciate?

Yes, but I meant as a choice. The appreciation of the currency would be the result of interest rate hikes whilst simply manipulating the exchange rate is a choice.

[BillyB]

There are two choices for SG, a high currency or higher interest rates.

If they start raising interest rates, won't the currency appreciate?

Yes, but I meant as a choice. The appreciation of the currency would be the result of interest rate hikes whilst simply manipulating the exchange rate is a choice.

It's interesting that Singapore actually control the economy by the money supply, rather than interest rate policies and the like.

[BillyB]

There are two choices for SG, a high currency or higher interest rates.

If they start raising interest rates, won't the currency appreciate?

As far as tourism is concerned, I can't see any negative implications yet of a strong SGD and the world's largest price-hike in the hotel industry. Logic suggests it should have had a negative impact on tourism, but apparently not...

I think the mindset of the Govt is that people will want to visit Singapore regardless of the rates because of the tourist attractions and the general appeal the Country holds. There is large investment in this sector that will continue. Universal Studios, MBS, Sentosa development, the new national park near the marina etc.

Plus it's a necessity for most people to use Singapore for a business/travel hub, so the strength of the dollar is somewhat irrelevant.

[hougangpeterlee]

There are two choices for SG, a high currency or higher interest rates.

If they start raising interest rates, won't the currency appreciate?

As far as tourism is concerned, I can't see any negative implications yet of a strong SGD and the world's largest price-hike in the hotel industry. Logic suggests it should have had a negative impact on tourism, but apparently not...

I think the mindset of the Govt is that people will want to visit Singapore regardless of the rates because of the tourist attractions and the general appeal the Country holds. There is large investment in this sector that will continue. Universal Studios, MBS, Sentosa development, the new national park near the marina etc.

Plus it's a necessity for most people to use Singapore for a business/travel hub, so the strength of the dollar is somewhat irrelevant.

Great post! How very true. It is indeed a necessity for most ppl to use Singapore as a travel hub.

[revhappy]

If they start raising interest rates, won't the currency appreciate?

Yes, but I meant as a choice. The appreciation of the currency would be the result of interest rate hikes whilst simply manipulating the exchange rate is a choice.

It's interesting that Singapore actually control the economy by the money supply, rather than interest rate policies and the like.

But how about the manufacturing and services industry. They will be hurt big time. Think about banks. When these banks' offshore centers were set up here few years ago 1 USD was equal to 2 SGD and now 1 USD = 1.2 SGD that is huge increase in costs and not to mention the increase in costs due to wage hikes. Sooner or later Banks will start moving their staff to lower cost countries and although currency is not the only reason for that, its one of the reasons.