The Singapore dollar will outperform Asian peers as its “safe haven” status attracts funds amid Europe’s debt crisis, according to Royal Bank of Scotland Plc and Brown Brothers Harriman & Co.
The currency has dropped 0.1 percent this quarter, the least in the region excluding the Chinese yuan, whose value is fixed against the dollar. Singapore has raised its economic growth forecast twice this year and now expects gross domestic product to expand as much as 9 percent after shrinking 2 percent in 2009.
“We think the Singapore dollar should continue to outperform during this ongoing period of heightened uncertainty as Singapore’s fundamentals remain stellar,” wrote Marc Chandler, a New York-based global head of currency strategy at Brown Brothers.
The International Monetary Fund forecasts Singapore’s budget deficit will be 2.2 percent of GDP this year, 11 percent for the U.S. and 11.4 percent for the U.K. The city-state has “one of the strongest public-sector balance sheets in the world” and “is starting to emerge as a global safe haven,” according to a research note from Royal Bank of Scotland Plc.
The Singapore dollar traded at S$1.4021 to the greenback as of 1:02 p.m. local time, according to data compiled by Bloomberg.
The currency will appreciate 3 percent to S$1.36 by the end of this year, according to the median forecast of 24 economists surveyed by Bloomberg.
The currency could be an “outperformer” compared with Taiwan’s dollar, Malaysia’s ringgit and the yuan, RBS said, without specifying a target.
South Korea’s won and India’s rupee have led losses in the region this quarter, dropping 6.4 percent and 3.6 percent respectively. Taiwan’s dollar has slid 1 percent so far this quarter and the ringgit has declined 0.2 percent.
Consumer prices in Singapore’s $182 billion economy rose at the fastest pace in 14 months in April, climbing 3.2 percent from a year earlier, data released on May 24 showed.
The Monetary Authority of Singapore in April allowed a one- off revaluation of its currency and signaled it may seek further gains to curb price pressures. Inflation may become “steep” in coming quarters due to rising wages and higher business costs, it said on April 28.
The central bank “remains in hawkish mode” even after the currency policy tightening in April, Chandler wrote in his note.
The republic’s foreign-exchange reserves climbed 3.2 percent from a month earlier to $203.44 billion in April, according to Bloomberg data.
Singapore’s central bank uses the currency instead of interest rates to conduct monetary policy and guides the local dollar against a basket of currencies within an undisclosed band.