Tag Archives: SGD INR Prediction

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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Indian Rupee – Real star or …

It’s a very interesting phenomenon every time SGD INR falls – people panic and there is a flurry of questions on SGD INR’s future. To me this anxiety is similar to a house owner checking on the market rate of the house they live, every week, and feeling sad if the latest transacted price in the neighborhood went down or celebrating if it goes up. In reality, this is just perceived loss/profit and is irrelevant unless the person is trading in properties and regularly buys and sells them for a living.

Anyway, leaving perceptions aside, lets look at how Indian Rupee has really performed against major currencies in the past 3 years before I turn my focus to SGD INR.

inr-summary

The Rupee has fallen against USD and JPY, against Chinese Yuan and Singapore Dollar its a flatline and the gains against EUR and GBP are not because Rupee has fundamental strength against them but because the 2 currencies have weakened due to their own issue – ECB monetary stimulus and Brexit vote respectively.

Also worth highlighting is Rupee’s inherent volatility where it went from 68/69 against the US dollar in Aug 2013 to 58 around Election time in 2014 and is back up at 67 mark – all in a matter of 3 years (refer comparative 1, 2 and 3 year charts at the end)

There is no doubt that the Rupee has been pretty stable in the past few months and the RBI has done a fantastic job of curbing the volatility in the face of BREXIT, expected US fed rate rise, Increasing Oil Prices,Redemption of FCNR deposits and escalating tensions with Pakistan.

But have the rupee or economic fundamentals changed to much in past few months? -I don’t think so.

India still imports 80% of its crude oil and as oil prices go up they would put a strain on the current account, the goods manufactured in China are still way competitive both in terms of cost and quality (maybe that’s why rupee is following the Yuan trajectory) and the NPA situation with Indian banks is still worrisome and could result in market turmoil.

Investing in NRE FD’s has generated stable returns depending on when one invested, refer – (https://adityaladia.com/2016/02/11/you-would-be-out-of-money-80-of-days-if-you-transferred-money-to-india-in-2015/) and would slowly stop being an attractive avenue as the interest rates in India go down.

Now coming to SGD INR, the current weakness is mostly due to flurry of bad news (or expectation management as I call it) on the economic and employment front. I have always maintained that the MAS is pro-active and lets the SGD adjust quicker to the market events as compared to what RBI allows or can allow with the INR.

All the expected or known negatives are already priced into Singapore Dollar and any other movement would be due to fed rate decisions. Even after the news of GDP missing estimates the SGD only fell around 1% which is very normal in the current volatile markets.

On the other hand there are a lots of factors for the Indian Rupee that needs to be priced in – merger of banks due to NPA’s, challenges for exports due to relatively strong rupee – China and other ASEAN countries, increase in crude oil prices, looming fed rate increase and of-course any escalation on the international borders with Pakistan.

As with the answer to keeping money in Singapore Dollar or remitting to India, the response is unique to every individual depending on their investment portfolio, diversification, cash flows and risk appetite.

48 would act as a very strong support and do factor in the cost of transferring money into India and remitting back, the cost of loan (if you are taking one) and tax obligations if you invest in property or stock markets when making any such decisions and don’t get stuck on specific numbers – transferring money at 49.80 is just as good as transferring at 50.

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INR performance – past 1 year

inr-1-year

INR performance – past 2 year

inr-2-year

INR performance – past 3 year

inr-3-year

SGD INR crosses 50!!

Finally the SGD INR RATE crossed 50, it’s taken 3 years for the pair to return back to this level and there is more appreciation to come.

In Aug of 2013 the Rupee was battered to all time lows and the RBI had a new Governor in Raghuram Rajan in September. The fiscal situation looked bad then with oil at all time highs and political uncertainty in India. With some bold policy moves (NRE FD’s and FCNR scheme) and good luck (falling oil prices) the RBI was able to reign in the fall and stabilize the foreign reserves situation.

But with global uncertainty in form of referendum on Britain’s exit from EU, the trajectory of Fed fund rate increases and increasing oil prices exit of RBI governor could not have come at a worse time.

The FCNR deposits of 3 years back are due for redemption between Aug and Nov of this year which would be a 20 billion USD outflow of reserves. Gold and Oil prices have bounced back from all time lows which will add to India’s woes.

If Britain decides to exit the EU then the global uncertainty will increase and any foreign firm will reevaluate their overseas investment plans which will include India.

What is most surprising is that a RBI governor who has been dead correct in warning the other federal reserves that cheap money policy is not a cure to global financial woes and has been instrumental in stabilizing the Rupee and control inflation is being let go due to political reasons – just because he decided to disagree with the government and force them to make the right policy changes he is being penalized.

Anyway the damage has been done and I would not be surprised if Rupee hits the 75 mark against the USD by November this year and if that happens SGD INR will be at 55.

However in the short term a range of 49 to 52 would be seen. For today I expect intraday volatility where after the initial fall RBI will try to stabilize the Rupee though a gradual fall in coming weeks should be expected as the international event unfold.

….. And remember 52 is not far away.

You would be “Out of Money” 80% of days if you transferred money to India in 2015

The last few days of Chinese New year holidays allowed me to spend some time on SGD INR analysis. I always had a feeling that transferring money to Indian specially with a view to play on the interest rate differential would not have been beneficial in the last year and I had to test my feeling against some actual numbers.

image

I took the average investable Tax Free NRE FD rate as 8% and cost of transferring money as 1%. The interest that someone could earn in Singapore was taken as average of 2% (DBS Multiplier, OCBC 360, UOB One or some money market funds) which brought the effective interest rate differential as 6% (8% – 2%).

There might be a few of you who could have got slightly better NRE FD rates and also managed a better transfer rate, however in my observation banks or transfer services usually charge anywhere between 0.8% to 1.5% as remittance fee. This fee could be charged as a out right fee or built into the exchange rate that they offer you. Similarly I took the cost of transferring money back from India as 1% as well though people tell me it can be close to 2%. I have personally never transferred money from India so just went in with the 1% charge.

The result of number crunching vindicated my gut feel  – there were only  39 days in 2015 (around 11%) which provided a better return if someone transferred money to India, invested in NRE FD and transferred it back to Singapore as compared to keeping money in Singapore and starting to transfer to India once SGD INR crossed 47.50.

Interestingly of those 39 days 12 were in Jan 2015 and remaining between 24th April to 22 May and few in mid June.

The number of days went up to 62 (around 20%) if the person decided to leave money in India instead of bringing it back but the period of transfer remained in first half of the year.

Anyone who panicked and transferred money since July would be “out of money” based on today’s DBS remittance rate of 48.50 (Market rate around 48.90).

Of-course the rates can and will change in the coming days and a few more days of 2015 might become “In the money” but I would rather transfer around 48 than at 46 – it translates to gains of around 5%.

SGD INR 2015

 

 

SGD INR crosses 48!

image

The SGD strengthened to 1.4150 against USD overnight and that has pushed SGD INR to 48.02 mark. I am expecting INR to strengthen when the Indian markets open around 11:30 am Singapore time.

If you are looking to transfer money today then the next 2 hours is a good time using DBS Remit. The offered rate is 47.57 and is expected to fall down once the Indian markets open.

Disclaimer: These are my views and not investment/financial advice. I bear no responsibility for any decisions made by readers.

Best options to Transfer Money from Singapore to India

With the jump in SGD INR the question of what is the best way to transfer money to India becomes important and has been asked a few times. My conclusion before today’s analysis was that DBS remit gives the best rates with the smoothest transaction experience. However in such a competitive market innovations and better pricing is expected and ICICI Bank with its new offering beats competition by a mile.

At the time of comparison the Spot SGD INR was 47.75 and below table shows how the 3 services which offer confirmed Rate transfer compared:

Service 3000 5000 10000 15000 20000
Money2India 47.18 47.35 47.48 47.52 47.54
DBS Remit 47.22 47.22 47.22 47.22 47.22
SBI Remit 47.3 47.3 47.3

As you can see for amounts 5000 SGD or more money2india had a substantially better rate than the competition and that happens because they have started charging 25SGD flat fee and reduced currency spreads. The rate money2india used was 47.66 and the results above are shows after taking the 25sgd fee and service charges into account.

Ofcourse the rates offered by money2india would change throughout the day but for transferring amounts greater than 5000 this would be my service of choice (the only other way to get a better rate is if you can find someone who wants SGD and would give you INR and deal at spot)

Couple of things to Note for Money2India transfer Service

1. Only allows upto 400,000 Rs equivalent to be transferred per day using the fixed rate service.

2. The rate is updated around 12:00 noon Singapore time

3.  Has a internal daily limit i.e. if the amount they have allocated for a day has been reached customers are refused transfers

I would have expected that there be no limit on amounts being transferred. With these limits it feels that money2india wants to only have small transactions so that they can earn more transfer fee. The rate still is better than DBS but as a customer I find these limits back door way of giving less to customers.

Update: Money2India no longer has fixed fee transfer service and the rates offered are not as good as SBI or DBS. For comparison of rates please refer to the widget on right or at the bottom (when using a phone)

SGD INR: 50 with SG@50?

Ever since the Prime Minister Modi came to power the feel good factor about Indian economy and India has increased dramatically. All Indians, including me, are rooting for improved Indian economy – infrastructure reforms, streamlining of tax code, improved law and order and not to forget getting back the black money stashed in overseas accounts. The expectation also is for the Rupee to strengthen as reforms kick in and help kick-start the much-anticipated economic growth.

The past few months have seen the pair oscillating between the 46-49 range and the volatility in the forex markets has been nothing short of a roller coaster ride. The pair dropped all the way to 46.5 after  the elections and bumped back up towards 49 only to test 46.5 again as the oil prices slid in the international markets (I was expecting a 45 floor as mentioned in replies to questions in the previous post).

SGD INR Dec 2014

INR has weakened against the USD to 63 as I had written earlier in (SGD INR: Post Election Euphoria) but interestingly SGD has also weakened in tandem. At one point in time the fall in SGD was greater as compared to INR and caused SGD INR to test 46.5.

Oil has fallen dramatically in the past few weeks and raised concerns of Central Banks not being able to meet their inflation targets prompting talk about monetary easing. A falling oil is good for India’s Forex reserves which has lent some support to the Rupee. On the other hand though the market sentiment remained weak as India’s trade deficit widened to one-and-a-half year high of $16.86 billion in November due to over six-fold jump in gold imports. Trade deficit in November last year was $9.57
billion.

The key events in play as I write are:

  1. Falling oil Prices and the rout of Rouble
  2. Bank of Japan’s push to achieve 2% inflation
  3. Expectation of FED rate hike in 2015

Falling oil prices can make the FED hold on to rate hike and also bring strength to SGD as the safe haven theory comes back into play. My expectation is for the Singapore Dollar to appreciate back to sub 1.30 level and Indian rupee to move upto 65 level which would bring the SGD INR back at the magical 50 mark in time for Singapore’s 50th birthday

 

SGD INR: Post the Election Euphoria

Time flies and it’s already June – I can’t believe that the last I wrote about INR was in February and whole world was speculating on the outcome of the Indian elections. I did not expect the BJP to win with a full majority given the polarisation of votes, combined with regional politics and was expecting a hung parliament. 

Based on that I had predicted that the Rupee would fall back to the 63 mark against the USD and 50 against the SGD (SGD INR: A storm in making). However, to my delight, the BJP did get a full majority. This meant that the uncertainty of a hung parliament and issues cropping up from coalition government were instantly non issues.

The markets reacted favorably to a government formed by progressive and reform oriented leaders and pushed the Indian Sensex to all time highs of over 25,000 and Rupee appreciated quite quickly to the Rs.58 mark against the USD. With many a Indians residing in foreign countries who remit money to India the obvious question was – Is the rupee headed to 55 against USD and should I transfer money to India now?

My answer to many such questions was – “the fundamentals of the economy don’t change overnight just with a stable government and the real effect of policy changes would take months to materialise and I still expect Rupee to stay over the 60 mark against the USD”

One of the first places to start when looking at fundamentals is Implied Exchange Rate calculation. Over the past years the spot rate has tended towards the Implied Rate Line (chart below: using SGD INR)

SGD INR 2014

and the calculation suggests that the SGD INR would move back towards the upward trending implied exchange rate line as the RBI is going to hold the interest rates steady – the inflation is still alarmingly high.

Other factors that would be playing against the Indian Rupee would be:

1. Crop losses due to el Nino weather changes

2. Increase in price of crude if the tensions in Iraq escalate

3. Global slow down in the background Ukraine crisis and escalation in South China sea

As I write the Indian rupee has already crossed the 60 mark against the USD and 48 against the SGD and I maintain that the INR would move towards the 63 and 50 mark against the USD and SGD in coming months.

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: 44… 47… 50?

Now don’t tell me you haven’t wondered if SGD can fetch 50 Rupees per dollar 🙂 and I have to admit that with the current rupee weakness it does not look like a impossible number to achieve.

What’s transpired in past 2 months is nothing short of shocking…personally I never thought that the INR could go past the 60 mark against the US Dollar but then I did not expect the Indian Government to bring in the food security bill, in its current format either, which would cost 3.8% of GDP.

The GDP has already been shrinking and GDP growth is estimated to be well below the 6.5% mark as targeted earlier. With rampant red tape blocking foreign investment, tax evasion and upcoming elections the picture doesn’t look to change dramatically in the near future.

On 8th July the rupee breached the 61 mark against the USD and forced the RBI to step in with measures to stem the fall. Since then rupee has stayed below the 60 mark with a weak undertone.

On the other hand the Singapore economy posted a 3.7% growth for the second quarter of 2013. It was more than 15% growth on a quarter by quarter basis. The results looked good but the guidance does not suggest that the trend would continue.

In the meantime, to moderate the housing market, the Singapore government has come up with total Debt Servicing framework which promotes prudent borrowing practices. The SGD in the same time touched 1.28 and has sea-sawed between 1.25-1.28 mark.

So here is what I think is going to happen – The Singapore dollar would weaken towards the 1.30 mark against the USD. This would do well for the Singapore’s exports and the tourism industry. With the weakening of SGD there are rumours that the borrowing rates would slowly increase to keep the housing markets in check. I personally feel that the debt servicing framework is the first step to ensure residents don’t over leverage while buying a property and get in trouble when the interest rates move up.

So as always million dollar question remains what happens to the SGD INR 🙂

My take is that with INR at 60 and RBI showing resolve to not let is fall below and SGD hovering around the 1.26-1.27 mark the mean price for SGD would remain at 47. If the SGD weakens to 1.30 as expected and Rupee settles at 58 SGD INR should march back below  the 45 mark.

However if the RBI measures fail to have an impact the Rupee could weaken to 63 against the USD, mainly on account of rising oil prices which are the biggest drain on India’s foreign reserve. If that scenarios plays out then their is little to stop the SGD INR to touch the 50 mark.

However if I look at the Big MC Index the Rupee is undervalued by almost 60% using the purchasing power parity – more on that another day