Category Archives: SGD INR

Right time to convert your SGD to INR

The Singapore dollar has held a pretty steady rate averaging Rs.32.25 / SGD in the past few months. We try to explore why borrowing in SGD and converting to INR is a good idea at this point in time.

The Historical Rate perspective
It first crossed the Rs.32 barrier mid July ‘08 and quickly retraced back around 10% to Rs.29.5 by mid August ’08. The SGD was quoting 1.35 and INR at 42.66 against the dollar, giving a cross rate of Rs.31.60 against the Singapore dollar as on 18th July 2008.
Then the financial crisis gathered steam and till date USD gained 11.37% against the SGD and 13.65% against the INR.
From the historical lows the USD has gained 22.65% against the Indian Rupee and just 11.37% against the SGD (sees charts below)

    usdsgd

  usdinr

 

 

 

 

 

 

 

 

The Economic Perspective
The Singapore economy has slipped into technical recession and the growth rates are projected to be within the 2% mark for 2009. India on the other hand projects a growth rate of 6-7% for the current year. In a nutshell the Indian economy is still growing which should result in a greater demand for Indian currency as compared to the Singapore dollar.

The Interest Rate Perspective

The average bank savings rate in Singapore hovers around the 1% mark as compared to 4% in India.
The long term fixed deposit rates for upto a year fetch appx. 2.5% in Singapore and 8.5% in India.
A one year return analysis will show that SGD against INR should move to 34.40 in a year’s time to maintain exchange rate equilibrium:
sgdinr-projection

 

 

 

Conclusion
Given the growth rate differential of around 4% between the two economies and the weakening of INR against the USD by twice as much as SGD, there is every probability that either the SGD will weaken further against the dollar or INR will appreciate against the USD to achieve equilibrium, by around 10% – giving a target rate of around Rs.30 against the Singapore dollar.
So if you convert your SGD to INR now you stand to gain:
         1. 14.67 % if the SGD/INR comes down to Rs.30 and you invested your converted proceeds in 8.5% Fixed deposit for a year in India
         2. 5.85 % if the exchange rate stays at 32.5 and you invested your converted proceeds in 8.5% Fixed deposit for a year in India
         3. 0% if SGD/INR moves to 34.40 (the probability of this is really low

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SGD/INR Uptrend: Causes and impact on average Indian

SGD/INR Up Trend: Cause and Impact on the average Indian

The Singapore dollar broke its historic highs of Rs.29.63 (25th July 2006) against the INR on 24th April 2008 – the closing price that day was Rs.29.65 per Singapore dollar. A fairly range bound pair that oscillated in the range of Rs.26 to Rs.29.5 per Singapore dollar has been in an uptrend ever since.

The long term volatility remained at 5% which made this a relatively stable currency pair.

We will try to analyse the possible reasons and for this uptrend and the impact on the average Indian.

What’s causing this spike?
1. Inflation
The island city country imports most of the consumables from food to gasoline to clothes from neighboring and other countries. The steady price rise and demand supply imbalances in these exporting countries have created inflationary pressures. Singapore which has enjoyed a low inflation of around 2.5 ~ 3 % for last few years is now expected to face inflationary trends of up to 5%. The MAS (Monetary Authority of Singapore) has been forced to undertake a gradual appreciation of the Singapore Dollar to maintain the purchasing power parity of its nationals.

2. Reduction in the Dollar Peg
The Sing dollar was historically pegged against the US dollars but with the recent USD weakness the currency as now been pegged against a basket of currencies which has a reasonable Euro bias. The Euro has been strengthening against all major currencies thereby imparting strength to SGD as well.

3. Crude oil Prices
The unprecedented rise of the Crude oil price from US$ 53, 3 years back to the current prices of US$136 has also caused this range bound pair to move in the same direction.
Singapore imports all petrol and other crude oil products for its use. A simple analyses shows a direct correlation between the pair (SGD/INR) and the crude oil.

Table1. Co-Relation SGD/INR to Crude Oil
Co-Relation 3.5 years 1.5 years 6 months
SGD/INR to WTI 0.42 0.46 0.95

Chart 1: SGD/INR against WTI Crude (West Texas Intermediate – a type of Crude)

Impact!!
1. Exports
With INR weakening against the SGD, the exporters have all the reasons to cheer. Singapore just might be the platform for them in to the South East Asian markets.

2. Employed in Singapore
The Indian expatriate population in Singapore is around .25 million people and the rising SGD has brought smiles to their faces. The remittances to the home country are bound to rise but with the increasing cost of living the upside there might be limited. In a nutshell their remittances have been adjusted for Oil led inflation.

3. The Vacationer
Singapore has been the favored tourist destination for Indian’s but with the SGD having appreciated by close to 16% the holiday costs are on the upside. The Indian vacationers could start to limit their tours to Malaysia and Thailand as a result of these costs.

The Road Ahead…
The MAS has indicated to allow the SGD to strengthen against the USD up to 1.25 by the end of this year dependant on need to reign in inflationary pressures. The current rate is 1.36 and was 1.43 for USD/SGD at the beginning of this year.
If the USD/INR stays at the current levels of Rs.42.5 / USD the year end rate for SGD/INR could reach Rs.34 / SGD if everything else remains the same. Given that Oil is traded in USD and India is a net importer of oil the demand for USD should rise in turn pushing the USD/INR upwards.

The mathematical model encapsulating the above information indicates the SGD/INR movements with respect to crude Oil as tabulated below:

Crude Oil Price SGD/INR rate
80 27.92
90 28.29
100 28.77
110 29.38
120 30.11
130 30.96
140 31.92
150 33.01
160 34.22
170 35.54
180 36.99
190 38.56
200 40.24

SGD just might be your hedge against the rising Oil Prices!!

Copyright: Aditya Ladia, ACA (India), ASI (UK)
Sources: http://www.oanda.com and http://www.eia.doe.gov for data on Exchange Rates and Crude Oil.