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.