Sell Singapore Dollar as Government Supports Exports, UBS Says
By Patricia Lui
Jan. 5 (Bloomberg) -- Investors should sell Singapore’s currency against the dollar, euro and yen as the government will favor depreciation to support exports amid a deepening recession, according to UBS AG.
The trade ministry last week said the economy in 2009 may shrink more than previously forecast after gross domestic product contracted for a third straight quarter. The Monetary Authority of Singapore is likely to adopt a weaker currency stance at its April review, Ashley Davies and Nizam Idris, Singapore-based strategists for the world’s second-largest currency trader, wrote in a report today.
“We are short the Singapore dollar against a basket of U.S. currency, euro and yen in a 60:25:15 ratio in anticipation of a move by the monetary authority to weaken its currency,” Davies and Nizam wrote in the report.
The local dollar slipped 0.5 percent in 2008, the smallest loss among eight of the 10 most-active currencies in Asia that declined last year. That compares with a 26 percent slide in the Korean won and a 19.2 percent slump in the Indian rupee.
Singapore’s dollar fell 0.5 percent today to S$1.4606 against the U.S. currency as of 12:26 p.m. local time, according to data compiled by Bloomberg.
A weaker currency may help boost exports, although it may also fuel inflation by making imports more expensive.
Guiding Currency
Singapore’s central bank manages its monetary policy by guiding the currency within an undisclosed band based on a weighted basket of major trading partners’ currencies. Policy adjustments are made by changing the slope, width and centre of the band.
The authorities stopped seeking currency gains at the October policy review after the country fell into a recession in the third quarter, replacing it with a zero appreciation stance.
The $161 billion economy may contract as much as 2 percent this year, twice as much as a Nov. 21 prediction, the government said last week. GDP shrank an annualized 12.5 percent in the fourth quarter from the previous three months, after a revised 5.4 percent contraction between July and September.
Industrial production declined for a second straight month in November as exports fell the most in more than six years.
The government is speeding up its response to the global slowdown and will unveil more steps to help companies and minimize job cuts when it brings forward its 2009 budget announcement to this month, Prime Minister Lee Hsien Loong said on Dec. 31.
To contact the reporter on this story: Patricia Lui in Singapore at [email protected]
Last Updated: January 4, 2009
By Patricia Lui
Jan. 5 (Bloomberg) -- Investors should sell Singapore’s currency against the dollar, euro and yen as the government will favor depreciation to support exports amid a deepening recession, according to UBS AG.
The trade ministry last week said the economy in 2009 may shrink more than previously forecast after gross domestic product contracted for a third straight quarter. The Monetary Authority of Singapore is likely to adopt a weaker currency stance at its April review, Ashley Davies and Nizam Idris, Singapore-based strategists for the world’s second-largest currency trader, wrote in a report today.
“We are short the Singapore dollar against a basket of U.S. currency, euro and yen in a 60:25:15 ratio in anticipation of a move by the monetary authority to weaken its currency,” Davies and Nizam wrote in the report.
The local dollar slipped 0.5 percent in 2008, the smallest loss among eight of the 10 most-active currencies in Asia that declined last year. That compares with a 26 percent slide in the Korean won and a 19.2 percent slump in the Indian rupee.
Singapore’s dollar fell 0.5 percent today to S$1.4606 against the U.S. currency as of 12:26 p.m. local time, according to data compiled by Bloomberg.
A weaker currency may help boost exports, although it may also fuel inflation by making imports more expensive.
Guiding Currency
Singapore’s central bank manages its monetary policy by guiding the currency within an undisclosed band based on a weighted basket of major trading partners’ currencies. Policy adjustments are made by changing the slope, width and centre of the band.
The authorities stopped seeking currency gains at the October policy review after the country fell into a recession in the third quarter, replacing it with a zero appreciation stance.
The $161 billion economy may contract as much as 2 percent this year, twice as much as a Nov. 21 prediction, the government said last week. GDP shrank an annualized 12.5 percent in the fourth quarter from the previous three months, after a revised 5.4 percent contraction between July and September.
Industrial production declined for a second straight month in November as exports fell the most in more than six years.
The government is speeding up its response to the global slowdown and will unveil more steps to help companies and minimize job cuts when it brings forward its 2009 budget announcement to this month, Prime Minister Lee Hsien Loong said on Dec. 31.
To contact the reporter on this story: Patricia Lui in Singapore at [email protected]
Last Updated: January 4, 2009
