SGD INR: A storm in making

It’s a new year and right about time to do a pulse check on INR for the coming year. The past few months I was very busy at work and with the currency being relatively stable I did not want to write something just for the sake of writing. As mentioned in the October post the currency stabilised in the last quarter of 2013 and stayed well within the 60-65 range against the US dollar and hovered around the 49 mark against the SGD (INR – Directionless in 4th Quarter)

One would have expected things to remain calm for a few more weeks in 2014 before the Indian Budget and upcoming elections in March and May respectively but the global markets had something else in mind.

The Federal Reserve started the much-anticipated tapering of Quantitative Easing (QE) in December, with reducing the Bond purchases by 10 Billion USD a month to 75 Billion and followed it by a reduction of another 10 Billion in January 2014 which spooked the emerging markets.

Turkish Lira and Hungarian Forint were aggressively sold off and the Argentinian Peso is unofficially devalued. The data from China is not exactly exciting and Indonesian Rupiah and Thai Baht have their own set of problems to deal with. At the same time the RBI came out and surprisingly increased the benchmark rates in January announcements which I thing was more of a pre-emptive move to shore up defences against any potential sell off in the Rupee. With such weakness in the other Emerging market currencies the Indian Rupee, I must say, held ground very well.

But this is just the start of the year and there are quite a few events lined up in the coming months that would determine which way the Rupee moves. On the global macro side the course of Global Financial Markets a.k.a. the pace of QE would drive the general sentiments towards emerging markets. On the domestic front The Indian Budget announcements and the general elections would be the key determinants.

Looking at the global front I do not expect the federal reserve to stop tapering and ultimately end the QE program unless there is definitive bad news on the US unemployment and inflation. This reduction in QE would be Rupee negative and as in May – Aug 2013 time frame has the potential to push the Rupee down.

On the domestic front anything short of a stable government with full majority would be a negative for the markets. I think that this stage there is no one clear party that I could say would achieve the majority.

So in the short-medium term of next 3-4 months the chips are stacked against the rupee and I do expect it to touch trade towards the 65-67 mark.

What that does to SGD INR? Well the SGD has slightly weakened against the USD and has been trading at 1.27-1.28 area. Deteriorating global fundamentals tend to result in strengthening SGD as a safe haven currency. So with the expected weakness in the Rupee and potential appreciation of the SGD, SGD INR could march back to the 53 mark in the coming months.

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28 thoughts on “SGD INR: A storm in making”

  1. Hi Aditya,
    Any specific reason why SGD is depreciating against USD so much since july 14. Infact its now beyond 1.30. Do we expect this to come down to 1.25 level by this year end?

    Thanks,
    Sridhar

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    1. Hi Sridhar,

      The global markets are in a Risk on mode which is a reversal from the earlier safe haven appeal of Singapore dollar.

      On the home front MAS administers the monetary policy through exchange rate. My guess is that the weakening of SGD is a pre cursor to increase in interest rates. Also the recent reports on GDP and growth have not been very encouraging.

      If Russia goes to war, if there is another melt down in US the SGD would strengthen. I don’t see it going to 1.25 against the USD by the year end unless something very dramatic happens.

      Like

  2. Hi Someone.

    SGD and INR are driven by how the individual currencies fair against the USD. In the current scenario SGDINR has fallen due to SGD weakening against the USD more than INR weakening against the USD.

    Falling oil prices have given some strength to INR relative to other currencies and SGD has been weak due to less than stellar Singapore GDP.

    MAS does maintain a band for the SGD against the basket of currencies and I would not think SGD would fall below 1.3 USD so 45 would be the absolute floor for SGD INR.

    If you are looking for investment then converting money and parking in NRE deposits or high yield corporate bonds would be a good bet

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  3. Hi Adi,
    I am only looking for SGD to INR conversion…not interested on other currency. And also now SGD is not stable at 48. Its below 48, currenctly 47.74+ .Will SGD go down beyond that and INR will be appreciated in near future… Any such prediction will be welcomed.
    Thanks

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  4. Hi SB,

    Rupee has weakened to 61+ mark against the USD and is pretty much stable at 48 against the SGD. Are you looking at EUR or GBP where rupee looks better because the other 2 currencies have fallen?

    cheers

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  5. Hi Aditya,
    Your prediction is correct . Right now its almost 48-49 range.But for last few weeks INR is getting strong. Any such prediction on coming months. Can you please let me know after that it will again go down or any such prediction??

    Regards
    SB

    Like

    1. Hi SB,

      The Fed Quantitative easing would come to an end in Sep. Rupee would take direction from there. I expect the Rupee to hit 50 against the SGD in a run up to the event.

      Cheers

      Like

  6. Hi Aditya,
    Yup got it now. As per your suggestion on Last week on Jun or first week of July it will reach to 48. Can you please let me know after that it will again go down or any such prediction??

    Regards
    SB

    Like

  7. Hi Aditya,
    As you said in next 4 weeks it will touch to 58-59?? Also you said to will touch 48….unable to understand this contradicting statement…. 😛 Please explain what month it could become what?? 🙂

    Like

    1. Hello anonymous,

      58-59 is used in reference to USDINR and 48 is used in reference to SGDINR. Hope that helps.

      Like

    1. Hi,

      I see Rupee stabilising around 58-59 for next 4 weeks as the initial euphoria of the modi govt fades.

      The test would be upcoming budget, monsoon and GDP figures. If RBI is forced to cut interest rates inflation would raise its head again. Oil prices have gone upwards and unless the new government can do something about the oil subsidy the PSU’s would continue to bleed.

      In a nutshell I think it SGD INR would move back towards 48 and then touch 50 by year end.

      Like

    1. Yes. I still believe that it would move towards 50…the initial euphoria would die down by next week and hard realities of growth and development take focus again. The key is what do you want to do with transferred money – if investing in Fixed deposit then convert now and that way your effective rate would be roughly 51-52 by the year end

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  8. Hi Animesh,

    The fundamentals and current account deficit situation would not change even if modi gets a clear majority. Rupee going below the 55 mark against the USD is detrimental to Indian exports. I still don’t see modi getting a clear majority and I might be wrong here but markets seems to have run ahead of themselves.

    Like

  9. Hi Aditya,
    Its a very informative blog. Very nice job. Do you still expect a hung parliament and sgd inr level at 51 after election results are out,considering the current election scenario in India?

    Thanks,
    Sridhar

    Like

    1. Hi Sridhar, Yes I do expect a hung parliament. BJP would be able to form a govt with support from regional parties but that would mean compromise on cabinet seats and policies. Moreover just because Modi becomes the prime minister the fundamentals of the economy would not change overnight. Coming to the exchange rate with the tensions rising in Ukraine oil price would become a factor. India imports nearly 80% of its oil and that’s not something the finance ministry or rbi can put curbs on. My belief is that as election results come out of a hung parliament the rupee would weaken to 63 against the USD which would bring it close to 50-51 mark against the SGD.

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  10. Hi Aditya, you are doing a tremendous job in your blogs with good articles first i would like to appreciate your work as we could get many useful information from it. Now coming to my query, from last month SGD to INR ratio has fallen from 50rs – 47rs due to strong performance of rupee. What is your prediction for near future (till May/June)? Will this still go down or will it take upward movement? Please let me know the your view from both sides of forming a majority govt or vice-versa. How the trend will be in both the case. If you have time alos please explain about this Modi storm which is going all round. Thanks you

    Like

    1. Hi Bharath,

      Thanks for the encouragement and kind words. Glad you find the writting useful.
      I believe that the Rupee would move back towards the Rs.50 mark. The general view in the market is that a strong rupee would hurt the Indian exports and the growth story and RBI would be aggresively buying dollars to cover some of the sales made when it was around the 65-68 mark. Commenting on the Modi phenomenon would need a little more space than this comment column – would be writting somethign soon analysing the situation.

      Regards

      Like

    1. 229 seats would still be short of majority by 25 odd seats ans that’s roughly 5% of the overall seats and anything short of complete majority would bring in uncertainty which would be Rupee negative.

      Coming to the second report a surge to 35-40 if it happens would not happen overnight….It might take 3-5 years of sustained economic growth and I dont think RBI would be pleased with such strong currency because the exports would fall and the one of the other big contributions to GDP – foreign remittances would not be contributing as much

      Like

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