Tag Archives: Indian Rupee

SGD INR in 2018, the inflation conundrum 

It’s been really long since I wrote a post dedicated to SGD INR and as 2018 fast approaches time is ripe to share my views on how SGD INR could move in the following months.

Given the politically volatile times that we live in and dilemma the central banks in developed economies face with prolonged period of low inflation,  a few interesting scenarios might play out.

Starting with India, with the implementation of demonetization and GST the countries GDP has taken a hit, which was not entirely unexpected. Any country that has implemented GST, experienced turbulent time of approximately 18 months before the benefits started to roll in. Alongside the GST implementation, the government has also been aggressively pushing for interest rate cuts to increase the economic activity. However, with the recent inflation print which came above expectations and crude  oil prices persisting above 50 USD a barrel,  the chance of rate cut in December ’17 is next to zero. The risk of inflation further accelerating is high and RBI has rightly held off reducing rates further until there are signs of moderating / low inflation. Now, a lot of this can be resolved if the manufacturers/producers start passing the benefits of reduced taxes from implementation of gst to consumers, this would result in reduced prices, which will lead to lower inflation and set the stage for a RBI rate cut but structural reforms of this scale take time to fine tune. 

On the political front, the elections in prime ministers home State of Gujarat are scheduled in less than a months time followed by a few more states with the National elections soon in sight in 2019. Any upset in the elections or signs of losses to the ruling party will result in re-evaluation of investor sentiment in India.

Now looking at the global factors, the 2 major central banks have diverged their monetary policies with Federal Reserve firmly on a path of rate hikes and ECB continuing with its Bond Purchases and negative interest policy well into September 2018. Japan has also indicated to continue with ultra loose monetary policy until inflation hits 2%. How did central banks arrive at this 2% magic figure is still beyond my understanding but that is a topic for another post. 

With the US Federal Reserve increasing rates,  reducing interest rates will be extremely challenging for RBI and without lowering rates encouraging new investments in India that leads to Job creation a distant dream. A divergence of relative yields between US treasuries and Indian bonds can result in a sudden flight of capital from the country.

At the same time the valuations in the Indian stock markets are at all time highs and the market trades at PE of over 23 which again by historical standards is high and suggests a correction. Infact the global stock markets are trading at an all time high with this liquidity driven rally. With Federal Reserve increasing rates, the investors will be forced to consider cost of  capital which could result in market correction and money being taken out of India. 

The silver lining amongst all this is that Indias foreign reserves have crossed 400 Billion dollars and that would provide some cushion against external shocks. 

In Singapore, the inflation and GDP growth has picked up but is still erratic. Singapore Dollar being a managed currency against a basket of currencies, of which USD, Euro and Japanese are a part of, the policy divergence between US and Europe will be interesting to watch. MAS administers the monetary policy through exchange rate and is maintaining a neutral slope of exchange rate band but with US Treasuries strengthening yield curve how long would this band remain flat is a question worth asking. 

Another very important factor not much talked about is the political succession in Singapore. Prime Minister Lee Hsien Loong has expressed his desire to step down as the prime minister or atleast have a succession plan in place. Who will succeed him and the political fall out from that move can impact Singapore economy and SGD. 

Singapore is fast trying to re-invent itself and write the next chapter of the growth story by catching on to the fintech wave and bio medical Research. Can these initiatives bring in new investments and create jobs will have to be seen.

So both currencies have their set of political risks and also will be impacted by increasing US interest rates. 

Singapore being a smaller economy and having shown greater nimbleness to react to global events is slightly better placed when compared to India making SGD slightly stronger than Rupee on a relative basis. 

I believe that just like 2017, 47.50 will play a pivot for the currency pair and we could see a range of 46 to 50 in the coming months as the inflation conundrum plays out – India wanting a lower inflation so that they can cut interest rates and developed world wanting higher so the rate increase cycle can continue. 

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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.

SGD INR: Unexpected Rupee Weakness

The sudden weakness in the Rupee has caught most of us by surprise and has caused Rupee to cross the 45 mark once again agsinst the Singapore Dollar.

I was expecting the pair to face stiff resistance at 44 mark and not breach the 44 mark any time soon (Sgd Inr expected trend till end of June 2013). The rationale being that SGD and INR would both move in tandem against the USD which would make SGD INR a stable pair.

However SGD strengthened very quickly from the 1.27 mark against USD to 1.25 in a matter of few days on its safe haven appeal with the fear over slowing global growth and Fed reconsidering the pace of Quantitative Easing (QE). My expectation was for SGD to touch 1.28 before starting to strengthen again

Indian Rupee (INR) on the other hand weakened against the USD with rising Gold Imports and expanding deficit and is nearing 57 against the USD as I write.

Its worrthwhile to look at the long term Implied Interest Rates trend line for SGD INR with such sudden changes

SGD INR Jun 2013

Its quite evident from the trend line that everytime SGD INR has crossed the trend line it tends to reverse back to the mean. Every cross over is a good opportunity to convert to INR for investment or other purposes.

Market rumours suggest INR would touch the 58 mark against the US dollar which could see SGD INR crossing the 46 mark which for me would be a great level to convert.

My suggestion as always is convert in small amounts to average out your conversion rate as its not possible to catch the top and bottom of any market.

The Fall and Rise of Indian Rupee: 45 days to lows, 45 to recovery

What a roller coaster ride the past 3 months have been!

The rupee was trading at 48.6 against in the US dollar on 31st Oct 2011 and precipitated to touch 53.70 on 15 Dec 2011, a 10% drop. These were the historic lows for the currency and with RBI’s policy changes the rate as I write is 50 against the dollar with RBI reducing the CRR rate and rupee gaining 7% from the lows.

Inflation, falling growth numbers, uncertainity in Europe (which by the way still exists) and political roadblocks to financial reform were stated as the reasons for the weakness. All the reasons held resposible for rupees weakness are still there. Yes, inflation has eased a bit but thats pretty much the only change.

Among numerous suggestions aired to aid the rupee was for RBI to conduct open market purchases in style of Indonesian Central bank which burnt 8-9% of its foreign reserves to stabilise the rupiah. RBI however refrained and relaxed rules to make term deposits attractive for Non Residents Indians – and NRI’s did bring in money into India.

Lets see how has rupee faired against the other currencies in the past 90 days

Surprised – right!! You did not expect to see these numbers, neither did I.

Interestingly after 3 months the INR has returned back to almost where it started against all major currencies and even managed a small gain against GBP and EUR

Against the USD the losses are paltry 2.6% which is close to long term volatility number. JPY on the other hand does come up as unexpected top winner against the Rupee with gains of 3.4%, but the real numbers are the ones shown in the last column.

Extreme volatility is what the data screams – with rupee having lost over 10% against USD and JPY and over 5% against the other pairs.

Question now would be are we expecting another such bout of swings in the market?

I would say unlikely unless a sovereign default event happens.

and how about the direction of Rupee?

I am putting my money on a stable to moderately strong outlook. The RBI has held the repo rates, the CRR ratio has come down and with a weakened currency there should be a a bigger impetus on exports which should all be Rupee positive. However the political instability and global financial turmoil could more than negate any positive factors so 49 – 51 against the USD is what I would  be looking at till end of 1st quarter.