SGD INR flirts with 52, could it hit 55?

After a long hiatus I finally got some time to make a post, thanks to the followers for the prompt and encouragement.

SGD INR has been on a roll in the past 8 months and to be honest this move was long overdue. The Indian Rupee was grossly overvalued and just needed a trigger to correct. This time around the triage of rising oil prices, increasing fed rates & falling emerging market currencies led by Turkey and political environment turning less favourable for the ruling BJP led by Prime Minister Modi finally precipitated the Rupee.

Rupee was 47.5 against the SGD and 63.65 against the USD on 1st Jan this year. Since the start of the year the Rupee has fallen 11.5% against the USD and 9% against the Singapore dollar and traded at 71 against the USD and 51.75 against the SGD yesterday. Looking at Year to Date (YTD) values one might think that the move is extreme and Indian economy must have worsened dramatically during the year but the fact is that the currencies were slowly adjusting to the dollars rise over the past 2 years and rupee was irrationally holding its ground. I have often mentioned in my previous posts that strength of currency and national pride should not be linked and currency should follow economic fundamentals and why such a simple concept evaded the current Indian government is beyond my comprehension.

Delving a little deeper and looking at the currency movement from an academic angle and using the Interest rate parity, the Fed rates have moved up from 25 basis points to 200 basis points over the past 2 years. India increased its rates recently from 6% to 6.25%. The interest rate differential which used to be around 6% has now come down to 4%. One might say that should have resulted the rupee falling by only 2% (6% – 4%) but why the big fall?

The answer is that rupee was fundamentally over valued. At the start of the year the REER (Real Effective Exchange Rate) index stood at 118 which simply means that the currency was 18% overvalued against a basket of currencies. The index currently is around the 110 mark. Which indicates that even after the correction the rupee remains overvalued. Now does that mean that rupee could fall another 10% against the US dollar? The answer is, theoretically yes! but will it happen in real, I don’t think so.

How does the rest of the year look like against USD?

The Fed is on a war path to increase interest rates and I expect at-least 2 more hikes over next 9 months before they take a breather. Oil prices have stuck around the US$75 mark and the expectation is for the oil demand to boost prices to US$80 to 85 a barrel range. The shock would have been severe had the world not been investing in alternative sources of energy. The US economy has been doing exceptionally well and the unemployment is at an all time low, EU has also started to improve with lower unemployment. After effects of BREXIT are still a concern and the ongoing trade war between US and the rest of the world doesn’t look to stop any time soon.

I think that the USD INR has a little more room to drop and will stabilise around the 72-74 range, another 2 to 4% decline from current levels. RBI has been smart to not defend the rupee unnecessarily and burn through the reserves learning from the actions of  the other central banks and is in the market to just smoothen the rupee’s fall. However,  better than expected GDP figures published on 1 Sep should lend temporary support to the rupee.

What does it mean for SGD INR?

Singapore dollar has been less impacted by the strengthening USD and MAS has allowed the currency to strengthen to neutralise the increasing US interest rates. USD SGD has hovered around the 1.35-1.37 mark.

If the fundamentals in the market deteriorate dramatically, USD SGD could touch 1.40, however if the oil prices increase and the inflation, specially housing prices don’t cool down the currency could strengthen to 1.30.

The SGD INR range that I see for the rest of the year would be between 50 to 54, with a bias to stabilise around the 52.5 mark.

India has elections due next year and this currency weakness would be welcome by the ruling party, which has a large support amongst the overseas Indian community to have foreign donations resulting in bigger rupee conversions. This is not very different to what happened in 2014 when the rupee had depreciated to 53 against the SGD in Aug of 2013 and then slowly recovered as elections approached in 2014. I am pretty confident that the trend will be repeated this time around.

Finally, coming to the crucial question of will rupee touch 55? I don’t think so.

Should you convert now and remit to India or wait? this is dependant on individual circumstances though I personally like to keep funds invested in Singapore.

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24 thoughts on “SGD INR flirts with 52, could it hit 55?”

  1. Hi Aditya,

    Now I have about 40% of my money in SG and 60% in India. I dont have SG PR and may have to eventually go back to India. I am planning to still keep most of my money outside India. The recent INR strength has got me excited again to move some money back to SG. I have about 23L in Yes bank(which is about 6% of my networth), which I am jittery about, the remaining is in ICICI bank. So I am planning to repatriate that 23L to SG. ICICI is charging about 2.3% over the spot rate i.e. 52.10 for outward remittance, when the spot rate is 50.80. But I think I will still take it. I will continue to invest in global etfs like I have done or may be just keep it in SGD for sometime. Any thoughts?

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    1. Hi Nitin,

      I think that the premium Indian banks are charging will stabilise once the Rupee stabilizes. There is a chance for it to touch 50 and bounce back from there this week. Transferwise from what I know offers a much better rate for both transferring into and outside India. I think it’s 1% to move money out of India, could be lesser.
      You could check them out.
      There are some india focussed debt funds in Singapore that you could consider to invest the money if that’s an asset class you are looking at.

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    2. Thanks Aditya. Transferwise allows only INR to USD. Also limit is 3.5L at a time and it is very new. There is another provider also called. https://remittance.fxkart.com/
      But these guys dont know the concept of NRE. The FXKart guys do for resident Indians LRS and ask for kyc and stuff. I dont think they are designed for seamless NRE transfer. I could get into trouble using these services. Have you or any other NRIs used them to transfer from NRE account?

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    3. Hi Nitin, I have used transferwise from Singapore and find their service seemless. I haven’t personally tried to transfer out of India, but do know that DBS india also has decent rates.

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    4. Thanks Aditya, you are right, DBS and even Kotak rate is 51.80. SBI is 51.70. The worse are ICICI and HDFC both 52.10. But now I have no patience to open account with DBS, so I guess I will have to make do with ICICI. I will watch the rates for the next couple of days.

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    5. That’s precisely why I don’t deal with ICICI, never have, never will, I have always found them pretty bad with hidden charges and unreasonable fees. Dbs is pretty good. Can open account in less than a week though if you want to try

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  2. Hi Aditya,

    Trend now going downward for SGD INR. What you think rupee again getting stronger? Do you anticipate it to go up, oil price now going down, Iraq issue is also resolved.

    Thanks
    Deep

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    1. Hi Deep,

      Sgd Inr peaked at 53.90 and any rate over 52.5 was a good rate to transfer. In the short run, ie December SGD INR could get close to 50. There will be general Usd weakness in Dec and the Rupee downfall can start again on the back of election results in India.

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    2. I dont think it will go below 50 in 2018. 2019 will be volatile with a lot dependent on Indian elections and possible US elections.

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    3. Hi Deep

      It’s market reacting to drop in oil price however the political risks remain. I do expect volatility to persist. If you are looking to transfer then 52 on a bounce is a good number and even investing in India focussed debt fund in Singapore is good

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    4. Thanks Aditya.
      I never invested in funds in SG while pretty familier of India MF market. Could you please highlight any good Debt fund for direct investment in SG i.e without broker.

      Regards
      Deep

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    5. Hi Deep,

      I do not know if investing directly with mutual fund companies is possible in Singapore. The 2 funds I like are HGIF India Fixed Income fund and India Fixed Income AM 30 fund

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  3. SGD INR crosses 53 and quite likely to move towards 54 quite soon as soon as oil prices increase in November after sanctions on Iraq. Thoughts?

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    1. Hi Sriram, I think that SGD INR might touch 54 within Oct and if it does that one should look at investing in NRE deposits. Nov being Diwali govt might want to announce some relief, by way of duty cuts, if the oil continues to rise.

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  4. Hi Aditya. Nice post…although after long wait 🙂

    I agree with most of the points you made in the blog except one on the INR depreciation being welcomed by ruling party before elections next year.

    Many factors like fed rate hikes, good global growth, higher GDP growth in India and higher oil prices will put an upward pressure on inflation which government can ill afford pre-election.

    Knowling the indian voters, they focus more on inflation no matter how rosy the GDP numbers may seem.

    Besides, I also have the same query as Sriram on US FCNR FD strategy. Would it be good move ? Awaiting your post on it.

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    1. Hi Punit,

      Elections in India are fought with money and its the urban voters who care about issues like inflation. Rural India its the money might and political donations go a big way towards it. But yes i do agree that the govt does not want runaway inflation and the hope that weaker currency boosts exports and creates employment which has been a chronic issue.

      Thanks

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  5. Thanks Aditya for the insights. Would converting SGD into USD and deposit in FCNR fixed deposits for the next 2-3 years be a good idea if we intend to stay in Singapore for the near term? And would you recommend indian banks or Singapore banks to do the same.

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    1. Hi Sriram, good question. I am analysing the payoff and various scenarios and will post on it in next one or two weeks. Stay tuned

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