Singapore dollar falls to 18-month law

Singapore dollar falls to 18-month law

SINGAPORE (AFP): The Singapore dollar has plunged to levels
unseen in 18 months against the U.S. dollar amid market
speculation that the government here prefers a weaker currency to
boost exports.

But most analysts, while defending their long-term uptrend
forecast for the robust Singapore unit, say the fall has stemmed
from the greenback's aggressive climb against major currencies.

"I would be more concerned only if the current weakness of the
Singapore dollar is sustained beyond 1997 and this weakness
results in Singapore's inflation rate exceeding three-and-a-half
percent," Andy Tan, general manager of U.S. investment house MMS
International, told AFP.

"But right now, there is little sign that this will be the
case," he said.

Unlike other governments which use interest rates to guide
local economic policy, trade-driven Singapore uses the exchange
rate, particularly to control imported inflation. Singapore has
one of the world's lowest inflation rates at 1.4 percent.

The U.S. dollar, which shot to an 18-month high of 1.4340
Singapore dollars last Friday, closed at 1.4320 at the end of
trading Tuesday. The Singapore unit has dropped by more than two
percent against the greenback so far this year.

Tan said that the Singapore dollar was probably "close to the
bottom" against the U.S. dollar unless the greenback made
additional sizable gains against the Japanese yen and the German
mark.

"The Sin dollar is not weak per se, but rather is marginally
weaker against the U.S. dollar on spilled over impact from the
broader strength of the U.S. dollar," he said.

Even though it has loosened its grip against the greenback,
the Singapore dollar has chalked up added strength against most
European and other Asian currencies, MMS studies showed.

But NatWest Markets, the investment banking arm of Britain's
National Westminster Bank, forecast the Singapore dollar would go
down further against the greenback before the end of the year.

"The currency pair now possesses enough technical momentum to
patrol a region of 1.4300-1.4500 on an intra-year basis," said
Daniel Lian, head of the emerging Asian markets research team of
NatWest Markets.

However, Lian added that in the second half of 1997, the
greenback would not be trading beyond 1.4200-1.4300 as it could
undergo a correction against major currencies.

The Singapore dollar, considered strong mainly because of the
city state's massive current account surplus, rising productivity
and low inflation rate, had appreciated by 1.1 percent against
the U.S. dollar in 1996.

At the end of 1996, Singapore had a current-account surplus of
nearly S$20 billion, according to the ministry of trade and
industry.

Economists polled in January estimated that the local unit
would strengthen by about two percent this year.

When the Singapore unit began falling against the greenback
last month, the market speculated that the powerful Monetary
Authority of Singapore (MAS), the de facto central bank, would
tolerate a weaker currency in view of the city state's slower
economic growth.