Tag Archives: SGD/INR

10% Stamp duty = 10% move in SGD

The 10% additional stamp duty on all house purchases by foreigners in Singapore took everyone by surprise and thwarted the plans of buying a house for many a people. This was the second drastic attempt of the authorities to moderate the Singapore housing market after the sales tax charge of upto 16% on selling a house within 4 years brought about earlier in February 2011.

One would question why such an extreme measure was needed which made owning a house 10% expensive for foreigners.
A policy to gradually strengthen SGD has helped control the inflation since the start of the year. The exchange moved from 1.28 in Feb 2011 to 1.20 by Aug 2011 – a gain of 6%. This tamed the inflation  but did not have the desired effect to cool down the property prices.

On the flip side a strong SGD has impacted the exports of goods and services by making them more expensive. It would be worth mentioning that the Singapore Monetary authority uses Exchange rate as one of the means to implement its monetary policies.

Lets put some numbers around how exchange rate impacts the cost of housing and exports. Say someone wanted to buy a house worth 128,000 SGD in Feb 2011 (I know there is nothing available at this price) and there were others wanting to buy services worth the same amount. The cost in terms of USD would be 100,000 for either case.

Come Aug 2011 the same house was now costing 106,000 USD and the property markets were showing signs of slowing down. But the services that earn revenue for the economy and also generate employment had gotten expensive as well.

In the backdrop of slowing global economy organisations would look to move to cheaper destination to source the same goods and service. So to stay competitive something had to give way and in this case it was SGD. With the currency moving back to 1.28~1.30 range the situation turns back to Feb 2011 with the potential of housing market starting the upward journey again.

Housing is a cost of living for the residents of Singapore and rising rentals and property prices has contributed to employees looking for higher salaries to cover costs. Higher salaries again result in net higher cost for the employers.

So the next logical step was to introduce a deterrence for the foreign money chasing the Singapore property and here we have a property tax.

Possible Scenarios

The scenario could now play in 2 possible ways – Let the SGD move around the 1.30 mark or let it depreciate a little more to 1.35 range (same as 2008-2009 levels)

SGD stays around 1.30

With this new tax the same house now costs 110,000 SGD for a foreigner but the cost of services and exports stay put at 100,000.

SGD moves to 1.35 mark

If the SGD moved to 1.35 the same house would cost 104,000 USD. This would bring net cost of a house for a foreigner back to the Aug 2011 levels achieving the same impact as SGD trading at 1.20 against the USD but the exports and services would be only 95,000 USD making Singapore very competitive against other Asian countries plus the 10% revenue that the government earns from the tax could go towards benefitting the residents or tax subsidies to the companies.

So all in all the range I see SGD moving in next few months would be 1.27 to 1.34 against the USD depending on how the global events turn i.e. a 3% move either side of 1.3 mark against the USD

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Forty Breached, What’s Next??

SGD finally breached the 40 mark against the INR and as anticipated in mid Oct all that was needed was some more chaos in the global financial markets and a move of INR to 52 against the USD and SGD claiming the 1.30 mark. Lots of movement – right?

So the obvious question which would come to mind is where is the pair headed next? Can it stay above the 40 mark? Can it march towards the 45 territory? or is it slated to drop back to 36-38 territory?

INR quickly precipitating to 52.7 mark and RBI not intervening was a surprise, people eagerly waited for an indication from the RBI governor and it finally came in the last week.

In Singapore on the other side  the inflation quickened pace predominantly attributed to weaker SGD but it did help exports.

Now the stage is set for some pullback – RBI governor relaxed rules on how much money the Indian companies could borrow in foreign markets and also increased the interest rates on the NRI accounts. Both the measures should help strengthen the Rupee as more Foreign money flows into India. The Interest Rates are still attractive @ 10% and make the deposits in India a good investment.

MAS on the other hand might let the SGD stay against the current levels to keep growth intact.

I am expecting the INR to slowly ease back to the 50 mark against the USD and SGD to hover in the 1.28 ~ 1.30 range with occasional bouts of spikes to 1.32/1.33 mark.

This should make the SGD INR pair volatile with base rate around 38.75 ~ 39.06 with occasional drops to 37.5.

Yes I am expecting a pull back!

There is an odd chance of INR moving to 55 against the USD if Italy defaults or some odd event happens in Europe. The key here would be the price of Oil for RBI, if the price falls substantially – RBI would not intervene in the market even if the rupee went all the way to 55, but if the current rates of 90$+ continues then RBI would be left with no choice but to sell some dollars and reign in the fuel price fuelled inflation

SGD breaches the Rs.39 mark, Eyeing Rs.40!!

SGD breached the Rs.39 mark in the interbank market today. Its been a volatile past few days with swings of around 5% with a downside move from 38.4 to 37.25 (3% downside) and then back up at 39.05 (upside of 4.9%).

The key events to have taken place in the plast few days have been a depretiation of SGD to 1.30 from the highs of 1.20 against the USD before the MAS policy meeting and then swing back to 1.26. The reason for the downmove was a possibility of MAS reversing its stand on strengthening SGD. However MAS indicated that it would allows gradual appreciation of SGD against the undisclosed basket of currencies making the slope of the curve less steep.
On the other side INR depreciated to 49.2 from the 45 mark – thanks to the undecisiveness in the global markets.

An obvious question that comes to mind is that can SGD touch the Rs.40 mark – I would say quite likely. All that needs to happen for the move to happen is some more chaos in the global markets. A weakening of INR to 52 against USD and SGD to 1.30 would result in a Rs.40 mark which is a 2.5% move from here.

Alternatively SGD could move to 1.25 and INR to 50 to get the same result.

But for either scenarios to play out there has to be increased uncertainity in the global markets. I would say hold on to SGD , if you already have, for next 2 weeks – you just might get a Rs.40 conversion.

If Singapore heads to a Technical Recession what happens to SGD INR??

Market has been rife about Singapore heading into a technical recession in 3rd Quarter of 2011. Prime Minister has revised the overall growth outlook downwards in the National Day speech and there has been a steady decline in the Electronics Export and other trading activities.

A technical recession occurs when a economy experiences negative growth for 2 consecutive quarters. To spur the economic growth I would expect the fiscal authority to ease out the rise in Singapore dollar to make exports more competetive. Lets look at what happened in  the last technical recession of 2008.

The Singapore dollar depreciated 14% against the USD and moved from 1.35 to 1.54 in a span of 6 months!!

Now what does this mean for SGD-INR that is had a spectacular run of 9% annualised appreaciation in past 4 years?

Simply speaking the SGD INR is a cross pair between SGD-USD and USD-INR therefore a weakening of SGD against USD would result in a decline in SGD – INR. The current USD-INR rate is 46.25 and SGD-USD is at 1.203. To get a better view lets see what happened to USD INR in the same period where SGD fell against the USD

USD – INR moved to 51.5  from 42 in the same time frame which is a gain of 20%.

Scenario 1

Using the two gain numbers of 14% and 20% the USD-SGD pair should move to 1.37 from 1.20 as of today and USD-INR would touch 55.5. The cross rate usinf these calculations would come out to 40.51 for SGD – INR.

I am sure all who have SGD holdings would get all excited seeing the figure, but before getting too excited lets look at other possibilities.

Scenario 2

The INR going beyond 50 mark will spell trouble for the Indian economy specially if the Oil prices remain around the $80 mark and the Reserve bank of India would intervene to stem  the rise. So a possible future rate where the SGD weakens 14% the cross rate would come out to 36.50.

Scenario 3

Another possibility is that the SGD depreciates around 7-8% and moves to the 1.30 mark then SGD INR would be at the 38.46, assuming that INR moves to 50 against the USD which is also the current rate.

Now lets throw in the Interest Rate of 10% for Term Deposits in India – for a 6 month period from the current rate of 38.4 any money invested in India would yield 40.32 in target rate (tax free) which is close to the rates in scenario 1. On a post tax basis the amount would grow to yield 39.74.

So we have the facts lined up and no matter what the scenario is, repatriating money to India makes a lot of sense.

SGD/INR – Has anything really changed??

 

Its been almost a year since I wrote anything on SGD INR or for that matter anything else. With the rate hovering around 35 there have been quite a few requests for me to express my views and here is my opinion.

How has the Past Analysis fared?

In my last post  (10th May 2010) I had recommended that converting SGD to INR at 33+ mark as it is beneficial based on Interest Rate Parity:

  1. Interest Rate on secured deposits  in India was 8% or more making conversion attractive and
  2.  The expectation was a downward movement from then rate of 32.4 against one SGD to Rs.30 giving additional gains

The first part of analysis held good but the rate moved opposite  – towards the Rs. 35 mark.

The instant question that comes to mind is Did I lose if I converted to INR instead of holding SGD’s?

The answer is NO. As per recommendation the pair moved to 33.29 within 2 weeks of recommendation on 21 May 2010. One Dollar coverted to INR @ 33.29 for 1 year and invested @ 8% would grow to 35.95 which is less than todays interbank rate of 35.85

Whats the recommendation for upcoming months?

I am going to stick with my recommendation that converting SGD to INR is beneficial in all situations and one would not loose by repartriating money to India and parking in fixed deposits.

The Interest Rates have strenghthened to 9.5% as of today and conversion has become even more attractive. To substantiate – lets say we convert 1 SGD @ 35.85  now and invest @ 9.5%, it will grow to 39.25 in one years time. Would SGD INR touch 39.25 in one year? Unlikely!!

SGD INR rate is a cross between USD-INR and USD-SGD for which the current rate is 44.25 and 1.235 respectively. For SGD INR to fetch 39.25 in a year the USD-SGD would have to move to 1.13, assuming that there is no change to USD INR.

Consensus on the street is that USD-SGD could move up to 1.19 by October 2011. Even if INR weakens to 46 against the USD the possible rate would be  38.65 after a year which is lesser than what you get by investing in a Fixed Deposit.

How do I decide when is a good time to convert?

Exchange rates do not move linearly and with the volatility its difficult to know if its a good time to convert. Also at the request of few readers I have added the dimension of taxability of interest income @ 30%. The below graph shows the movement of SGD INR for the past 2 years.

Two important observations are:

  1. SGD INR has stayed below the Tax Adjusted Implied Rate (TAIR) line except 2 occasions
  2. Its beneficial to convert to INR whenever the actual rate moves away positively from the TAIR.

On 13 Sep 2009 the TAIR was 32.94 and Actual Rate was 33.94, Actual Rate moved back to TAIR of 33.01 on 4 Oct 2009. On 30 Jan 2011 the Actual Rate was 35.81 against the TAIR of 35.49 and the two converged to 35.53 by 6 Feb 2011.

The chart below shows the prediction based on curent exchange rate of 35.85, Interest rate of 8.5% till 30 June 2011 and 9% after that till 31 Dec 2011, tax of 30% and Start of Year Rate of 34.96:

 

The expectation is that with the Singapore elections on 7 May 2011 the SGD might appreciate quickly towards 1.19 against the USD giving a possible rate of 36.5 in next 2 weeks. If this happens you know what to do!!

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Update – 30 May 2011

The Interbank Rate moved up to 36.55 today – target achieved. There is a slight possibility of the pair flirting with 37 levels but 36.5 is a good rate to convert.

 

SGD INR – whats in store for 2010

2009 proved to be a volatile year for a lot of currencies – specially the pairs with USD as one of the component, but the cross currency rates like SGD/INR showed relative stability. The pair has moved between 32 and 33.5 over the past 2 years.

The question a lot of you would be asking is what happens in 2010? So here is my analysis.

I expect SGD/INR to turn towards 32 to 30 range over the next 6 months to a year. A look at the chart below would show that the pair failed to stay past 34 mark even though it crossed it once. The pair has been hovering betwen the 33 – 33.5 mark for past 6 months. 

 

 

 

 

 

 

 

SGD-USD movement

The Singapore Monetary authority has been maintaining a policy of gradual appreciation of SGD against the USD. This has been giving SGD strength against the INR as well (SGD/INR) being a cross rate.  The latest economic data shows that the Singapore GDP shrank by 6.8% in Q42009. This would force the MAS to rethink about the strong SGD approach. The most likely scenario is for SGD to move to the 1.45 – 1.50 range against the USD. traditionaly the MAS has allowed SGD to strenthen against basket of currencies with growth in SGD.

INR-USD movement

Indian economy on the other hand has been performing well and the projected growth in GDP is 6.5 to 7.5%. With improving GDP numbers and growth in economy the INR should strenthen back to its long term mean of 44 – 45 against the dollar. Using these two assumptions we can plot the projected move of INR against SGD.

Cross Rates between SGD/INR based on possible values of SGD/USD and INR/USD

The cells in dark green indicate the current range of SGD-INR depending on the rates of SGD and INR against the USD.

The cells in dark blue indicate the possible rates as the currencies re-adjust giving a range of 31.9 to 32.75 (this is the short term expectation – for next 3 to 6 months)

The cell is amber indicate the longish term range as the growth gathers steam over next 1 year.

So as always – I would recommend converting converting SGD to INR at any rate above Rs.33 for a Singapore dollar.

SGD/INR whats happening with it?

Its been time since the last post on SGD/INR and a lot has happened in the currency market. Though surprisingly the SGD/INR rate has moved in the narrow range of 32.5 – 33.50.
The past few months saw SGD strenthening from 1.55 to 1.44 against the US dollar. Rupee on the other hand moved from 52.5 to 48.00 against the greenback.
The interest rates front has turned interesting as well – the central banks are not so focused on inflation and growth seems to have caught their attention once again. The rates have softened across geographies. The Interest rate in singapore for a long term deposit will average around 1.25% and India a long term deposit brings in 7% on an average (though the long term National Savings certificates still get 8% but the lock in is for 5 years)
In the light of the new data converting singapore dollars to Indian Rupees still makes sense.

Even if the Singapore dollar stays at 32.75 agaist the Rupee the gain turns out to the 5.6% and a chance of loss is only if the Rupee weakens beyond 34.60 against the SGD.

As earlier thats a unlikely scenario. The probability of Rupee strenthening against the USD to the range of 44 – 46 is extremely likely and that would see SGD INR heading down to Rs.30 levels. When will that happen is really difficult to say, but for the time being it still makes a lot of sense to convert SGD to INR (those of you who followed the post in the past must already be sitting on annualilsed gains of 5.6%).

If you want to go a step further then borrow in Singapore dollars – a lot of banks are running offers for 6 month loans for a effective rate of 3% p.a – and convert to INR.

Even with the interest lay out you stand to make near riskless gains of upto 3% or more!!

Even Better time to convert your SGD to INR

With the recent volatile movements in the Currency markets and substantial weakening of INR against the USD here are some more analysis on SGD/INR conversion.

The latest USD/INR rate in the interbank market stands at 51.75 (3 March 2009, 3:00 GMT), this is a appx. 4.5% deprecaiation since the last post. SGD on the other hand has depreciated by appx. 2.0% against the USD – from 1.517 to 1.556.

The trend shows a beta of appx. 2 between the depreciation of INR against USD as compared to SGD against USD.

The latest market buzz is for the INR to depreciate to Rs.54 against the dollar on a conservative basis and Rs.56 on a pessimistic basis due to balance of payments situation, falling GDP growth rate and overall withdrawal of Foreign Direct Investment.

 This would translate to a depreciation between 9% to 13% from the rate of 49.5. If the beta factor holds then the SGD should depreciate by 4.5% to 6.5% from the base price of 1.517. This would give a range of 1.585 to 1.615 against the USD.

Using the cross rates the SGD/INR should be in the range of 34.06 to 34.67, resulting in movement between 3% to 5% from the current price of 33.06 over a period of 3 months – if Rupee depreciates further

The interest rate gain for three months would avg 2% [(9% (indian Fixed deposit rate) – 1%(singapore deposit rate)/4] so even if rupee weakens down to 56 against the dollar you stand to gain 5%-2% = 3% if you hold for three months and 1% if it touches Rs.54. Given the interest rate diffrential and probability of more than expecetd weakening of SGD against the USD (beyong 1.617), it is a even better time to convert SGD to 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