Tag Archives: SGD INR Trend

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.

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SGD INR stuck in a range?

Its been a few months since I wrote about the pair as most of the discussions were in comments to previous posts, but today’s MAS decision warranted a new post.

There were ripe speculations that MAS is going to ease the monetary policy (which it did) and Singapore is headed for a technical recession. The economy expanded by a modest 0.1% much against the consensus of a contraction of 0.1%. The immediate impact on the exchange rate was a modest gain from 1.4025 overnight to 1.3960 as I write.

One would question that why has SGD strengthened even though the policy has been slightly eased? There are various factors at play:

  1. The expectations of a USD rate increase this year are negligible. I would be surprised if the Fed raised the rates in Dec when the volumes are thin due to holiday season. My personal view is that it was a missed opportunity in Sep and Fed should have increased the rates but that’s a different topic of discussion.
  2. SGD had fallen all the way to 1.43 in anticipation of easing, but recovered slowly over the past week with rest of the regional currencies. If one looks at the bigger picture then Indonesian Rupiah has appreciated by around 9% against the USD and Malaysian Ringgit has firmed up by around 6% in past 10 days. The key words for me from the MAS policy statement is “slow the pace of local dollar’s gain”

MAS will continue with the policy of a modest and gradual appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band. However, the rate of appreciation will be reduced slightly. There will be no change to the width of the policy band and the level at which it is centered, saying it would seek to slow the pace of the local dollar’s gains versus its trading partners.

Both Malaysia and Indonesia are key trading partners for Singapore and a greater than 5% jump in their currencies diluted any chance of SGD depreciation. The intent of MAS Is clear – it wants SGD to be slightly stronger than its trading partners.

Now if one looks at INR it appreciated very quickly in after the US job reports from the comfort that no fed hike is on the cards. It was good news for FII’s who can pump money in Indian Bonds and earn good interest rate. Many mistake this as FII investment in India because if one looks at the economic indicators they don’t look very good – be it industrial production. agriculture produce or job growth.

I have said this many times and would repeat again – the sooner INR falls towards 70 the better it is for India. The Indian exports are declining due to competition from other countries with weaker currencies and the day fed hikes the interest rate INR could dip 2-3% overnight and that is not a pleasant shock for the economy.

Anyway for now no major events are scheduled in the coming months other that the results of the BIHAR elections. I believe irrespective of the outcome the Rupee is scheduled to fall post-election results. If BJP wins there would be a knee jerk appreciation which will fizzle out as the economic data and realities will take center stage. If BJP looses then Rupee would immediately fall from a sentiment perspective.

So for the next few weeks I expect SGD INR to be range bound between 46-48.

MAS Holds Off Easing and SGD jumps…

As expected, MAS held off any more easing as the GDP numbers were better than expected, SGD quickly jumped back to below 1.36 and I expect it to go below 1.35 in days to come.

There are 2 very interesting and informative info graphics that were published in Business Times on 12th and 13th April that I am sharing with every one who are interested to know how does NEER work and monetary policy is administered.

Billion SGD question How Policy Works

RBI Cuts Benchmark Rates – Now What?

The much talked about interest rate cut finally happened today. RBI Governor keeping true to his character surprised the markets with an earlier than expected cut taking India on a path different from Russia and Brazil where central banks have increased the benchmark rates in the past few weeks.

I must say it’s a brilliant move by the Governor to put the ball back into Finance Ministers court and push for structural fiscal reforms in the upcoming budget. The general sentiment has been that the higher rates are keeping India from growing which overshadows the fundamental issues of red tape, poor infrastructure and wastage in public expenditure.

The sustained fall in oil prices (thank Russia for occupying Crimea) has given India the much-needed window to push through reforms without being worried about stroking uncontrolled inflation.

The question is that will this rate cut and structural reforms be enough to achieve the targeted growth? No, absolutely not. The other key factor, which should not be ignored, is the exchange rate of the rupee against other currencies. To recap the last year – Rupee has oscillated between 58 and 63.5 against the US dollar (I use USD as a benchmark because the other rates are nothing but a cross rate). The fall in rupee has been less pronounced as compared to its Asian peers like the Malaysian Ringgit, Indonesian Rupiah, Singapore Dollar, Korean Won etc. On the global front, the Yen, Euro and Pound have also dropped sharply against the USD resulting in net gains by the Rupee against these currencies as well.

While the gains in Rupee boost the feel good factor about the India story – is a sustained gain in Rupee the right thing for the Indian economy? My take is that RBI would not let Rupee gain beyond the 62 mark to keep the exports competitive. There was evidence of this when RBI was seen buying dollars in the last week when Rupee gained sharply. With a generally weaker Rupiah, Ringgit, Peso and Riel the Indian exports would face tough competition in areas like garments, IT services, food grains and other manufacturing. Also with Euro and Pound weakening the demand from European countries would decline if the goods are not priced competitively.

With crude oil staying below 50, I think RBI would target the Rupee around 65 against the USD (at-least that’s would I would do, if I were the RBI governor). That would be a roughly 5% decline from the current levels and will bring it at par with other countries with export competitiveness. A sharp gain in the currency would negate any benefit that the lower oil prices would have and I don’t think the RBI or the finance minister would want that.

We should not forget that infrastructure reforms do not happen overnight and take years to fully have the desired impact.

What would that do to SGD INR – 45 mark would remain as the strong support for the pair with upside of Rs.50, but of-course remitting money to India and investing in NRE deposits would always remain a good option.

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

SGD INR: Expected Trend till End of June 2013

We are well into second quarter of the year and its time for an update on the SGD INR projection.

Even with my best intentions to share thoughts on the pair as early as April its only now that I got sometime. Neverthless there have been some interesting developments in the past weeks which can impact the movement of the pair and its a good time to try and ascertain the trend in light of these.

On April 13 2013 the MAS maintatined its tight monetary policy stance even though the GDP unexpectedly contracted in the first quarter of the year and On 3 May 2013, the Indian Central bank lowered the key rates to 7.5%.

There was a expectation that with slowing GDP growth the MAS would allow the SGD to weaken against the other currencies and the USD-SGD might touch 1.28 mark. However with the inflationary pressures the monetary authority decided to keep the band and slope of policy bank unchanged.

On the other hand the RBI lowered the rates to boost growth in the slowing Indian economy.

Both the events are positive for the respective currencies and though INR has remained around 54 mark to USD, SGD moved from lows of 1.25 to 1.23 after the news.

With both the currencies showing some strength the SGD INR pair would remain stangnant in the 42-44 band. The pair has formed a strong resistance at the 44 level and I do not see it breaching this in the next few months.

With slowing growth the SGD might march back towards the 1.25 mark which would push the SGD INR pair towards the 42 levels.

So if you are looking to invest in India then a exchange rate of 43.5 – 44 would be a good rate to use

SGD INR – What’s in store for 2012

2011, what a year it has been for the global markets and SGD INR has been a party to it. The pair started the year at 35.10 and finished at 40.74 a rise of 16%. However the pair has resumed the downtrend and is trading at 39.30 as I write – a drop of 4% from the year-end close.

Let me highlight how the past analysis has fared before delving into how the pair could move in 2012.

In the first post of the series on 23 April 2011 SGD INR – Has anything really changed the recommendation was to convert to INR and invest in deposits. The exchange rate was 35.50 on the date of writing and my recommendation was it could touch 36.5. this target was achieved on 30 May 2011.

The pair continued to move along the interest rate parity line and Tax Adjusted rate line for next 6 months before Rupee began its downslide in Sep 2011 due to weakening economy, uncontrolled inflation and financial turmoil in the global markets.

As Rupee slid from 48 to 54 against the US Dollar (USD) in the next three months its slide against the Singapore dollar was 37 to 41 – drop of 10% against either currencies.

When SGD breached 39 the prediction was for it to ride the momentum and cross 40 SGD Breaches 39 mark, Eyeing 40.

The prediction came true and Rupee went all the way to 41. In the post on 27th Nov 2011 the prediction was made for a pull back with pair ranging between 38.75 – 39.06 40 breached, What’s Next  which is on track as the pair is moving towards the 39 mark.

In the mean time a very interesting development happened as Reserve Bank of India (RBI) deregulated the NRE deposit rates to boost foreign currency supply in the market Now NRE Deposit yield 9.25%, and yes its Tax Free.

Having looked at all these factors here is my take for 2012 (stay tuned for updates every quarter, its very difficult to take a long term view in such volatile markets)

  • INR should strengthen against all currencies and SGD would be no exception.
  • On an Interest rate parity analysis SGD converted to INR and invested in an NRE account would grow to 43.25 in a years time at todays conversion rate of 39.5. The Rule I follow is to convert whenever the actual rate is above the implied rate line
  • With NRE deposits becoming tax free repatriating money in and out of India is easier
  • With Rupee strengthening the gains should be compounded for any investments made in INR

So unless you feel that SGD is headed towards a Rs45 mark in the next year investing in INR is sure to yield good return.