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SGD Appreciation

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BillyB
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Postby BillyB » Fri, 26 Aug 2011 11:42 am

revhappy wrote:
BillyB wrote:
ScoobyDoes wrote:
aster wrote:
ScoobyDoes wrote: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.


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.



For manufacturing, one of the key points of the SGD appreciation by the Gvt is to protect the local firms buying the raw material in the first place. If they can compete on raw material costs they can compete on end price. I think you'll find that it will be this sector that will prevent Singapore from slipping into a full blown recession - maybe at worst a technical recession.

For services - banking - what other options do you have in SE Asia that has corporate tax rates as low as SG, less corruption, a good travel hub, and is an appealing Country to live and is as developed as SG? I don't think SG was ever viewed as a cost centre per se, more of an extension of the HK arm or a client servicing hub. It's the most expensive country in SE Asia so it makes no sense. It's grown in line with the economy but we are seeing some scaling back and divisions shifting to HK. Although some banks have just shifted entire trading divisions here, so it's swings and roundabouts and dependent on corporate strategy. I'm of the view that if you pay peanuts - you get monkeys. So sometimes saving a quick buck in the short-term can create a whole mixture of longer term issues.

New Zealand was supposed to be a new location for an offshore centre, but the natural disasters created a u-turn. Indonesia is going to be heavily utilised in the coming decade but it doesn't tick all the right boxes for many people.

Banks will always find a way to create a return on equity - whether that is from increasing revenues or reducing costs, more complex products, acquiring competitors etc. It all tends to be a cyclical process in the banking space with a handful of banks expanding more aggressively whilst others are constricting. Although at this moment in time - it's more of the latter across the industry.


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