If Singapore heads to a Technical Recession what happens to SGD INR??

Market has been rife about Singapore heading into a technical recession in 3rd Quarter of 2011. Prime Minister has revised the overall growth outlook downwards in the National Day speech and there has been a steady decline in the Electronics Export and other trading activities.

A technical recession occurs when a economy experiences negative growth for 2 consecutive quarters. To spur the economic growth I would expect the fiscal authority to ease out the rise in Singapore dollar to make exports more competetive. Lets look at what happened in  the last technical recession of 2008.

The Singapore dollar depreciated 14% against the USD and moved from 1.35 to 1.54 in a span of 6 months!!

Now what does this mean for SGD-INR that is had a spectacular run of 9% annualised appreaciation in past 4 years?

Simply speaking the SGD INR is a cross pair between SGD-USD and USD-INR therefore a weakening of SGD against USD would result in a decline in SGD – INR. The current USD-INR rate is 46.25 and SGD-USD is at 1.203. To get a better view lets see what happened to USD INR in the same period where SGD fell against the USD

USD – INR moved to 51.5  from 42 in the same time frame which is a gain of 20%.

Scenario 1

Using the two gain numbers of 14% and 20% the USD-SGD pair should move to 1.37 from 1.20 as of today and USD-INR would touch 55.5. The cross rate usinf these calculations would come out to 40.51 for SGD – INR.

I am sure all who have SGD holdings would get all excited seeing the figure, but before getting too excited lets look at other possibilities.

Scenario 2

The INR going beyond 50 mark will spell trouble for the Indian economy specially if the Oil prices remain around the $80 mark and the Reserve bank of India would intervene to stem  the rise. So a possible future rate where the SGD weakens 14% the cross rate would come out to 36.50.

Scenario 3

Another possibility is that the SGD depreciates around 7-8% and moves to the 1.30 mark then SGD INR would be at the 38.46, assuming that INR moves to 50 against the USD which is also the current rate.

Now lets throw in the Interest Rate of 10% for Term Deposits in India – for a 6 month period from the current rate of 38.4 any money invested in India would yield 40.32 in target rate (tax free) which is close to the rates in scenario 1. On a post tax basis the amount would grow to yield 39.74.

So we have the facts lined up and no matter what the scenario is, repatriating money to India makes a lot of sense.

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6 thoughts on “If Singapore heads to a Technical Recession what happens to SGD INR??”

    1. Hitting is one thing sustaining is another…Rupee Hit 57 against USD but then what happened? Odd market events are always possible but those are market abbertions not the norm

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  1. Hi,

    I planned to transfer around 7750 SGD every third month to INR. Can you predict if i should increase or decrease the gap of each transfer? What is the future of SGD for the first half of 2012 against INR?

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    1. Hi Hitesh,

      The frequency of your transfer is dependant on how that money is used in India. If it goes towards EMI or any fixed expenses I recommend holding the frequency constant.
      Otherwise i would increase the frequency of transfer and keeping spare money in short term fixed deposit where you could get upto 7& for 6 months.
      My take is that the SGD/INR cannot sustain above Rs.40 and i would expect it to go down to around 38 mark.

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  2. INR has depreciated on an average 9% over past 4 years against the SGD. I do not see the trend to continue any more at max the rate should go to 39.5 which is another 4% from here. Indian Central Bank will have to intervene in the currency markets as a strong dollar is not favorable for the oil bill.
    On the other hand if Singapore has to remain competetive as a outsourcing destination SGD has to weaken against USD.

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  3. INR has declined 10% yearly over the last 2 years against the SGD. Do you anticipate that it would continue to decline against the SGD or will the trend reverse?

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