Analysts Highlight Inflation and Regional Recovery as Key Factors
Is the Singapore Dollar Losing Its Shine?
As the new year unfolds, economic forecasts abound, including insights into the Singapore dollar’s performance. The currency, a standout for its stability during 2022’s turbulent forex markets, remains a strong contender for the region’s best-performing currency in 2023. However, leading financial institutions such as Goldman Sachs, Societe Generale, and OCBC have raised concerns, leading to bearish predictions for the SGD.
Cooling Inflation and Slowing Exports
Singapore’s non-oil domestic exports fell for the third consecutive month this January, dropping by 20.6% year-on-year from a high base. Export demand often supports the Singapore dollar, but as it wanes, so does the currency’s value.
The Monetary Authority of Singapore (MAS), having tightened monetary policy five times in the past year, is expected to pause in 2023. This pause reflects stabilised inflation, particularly for imported goods. A less aggressive MAS could help Singapore’s export-driven economy by preventing excessive currency strength.
Still, inflationary pressures linger. With a 4.1% core inflation rate in 2022 and a one-point GST hike, domestic costs remain a concern. If inflation persists, MAS could resume tightening, strengthening the SGD further.
Regional Economies Are Rebounding
The US dollar’s 2021–2022 surge is expected to wane, and with China’s reopening, regional currencies are poised for recovery. Analysts suggest the South Korean won and Thai baht may attract investor interest over the SGD.
Other regional currencies, such as the Indonesian rupiah, Philippine peso, and Malaysian ringgit, face unique challenges:
Indonesia’s central bank may halt rate hikes.
The Philippines faces trade deficit concerns.
Malaysia’s commodity-driven economy struggles with declining prices.
A Balanced Perspective
While some economists remain optimistic about the Singapore dollar’s prospects, the cooling export demand and inflation stabilisation may temper its strength. This moderation could prove advantageous for Singapore’s economy, preventing overvaluation and supporting global competitiveness.
Investors should watch these dynamics closely as regional and domestic factors continue to shape the SGD’s trajectory in 2023.
