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    Apr 15, 2014

    Higher US interest rates to take toll on Sing$

    THE Singapore dollar has come up as Asia's most vulnerable currency in the light of higher interest rates in the United States, according to financial news and data agency Bloomberg.

    Its analyst estimates suggest that, by year end, the Singapore currency will weaken to S$1.28 against the US dollar, compared to around S$1.25 now.

    Mr Jonathan Cavenagh, currency strategist at Westpac Banking, told Bloomberg that a higher yield environment in the US, set for the second half of this year and next year will "cap Singapore dollar strength, for sure".

    "Singapore runs monetary policy via the exchange rate, so it is somewhat beholden to where interest rates in the US ultimately go to," he said.

    "Ultimately, that is certainly a risk to the Singapore-dollar outlook."

    The Monetary Authority of Singapore (MAS) said in a statement yesterday that it will maintain a "modest and gradual appreciation" of the currency.

    But most economists agreed it would weaken against the greenback.

    "With a recovering US economy and upside to interest rates there, it is not just the Singapore dollar that will stay weak against the US dollar, but most global currencies as well," said CIMB regional economist Song Seng Wun.

    He explained that it is more important to look at the trade-weighted Singapore-dollar exchange rate, rather than just the Singapore dollar vis-a-vis other currencies, especially as the country runs a trade-oriented economy.

    "This policy, as a result, has been able to keep imported inflation at bay," said Mr Song.

    He added that a weakened Singapore dollar may not affect exporters here significantly, as most of what is produced here are recognised for their "high value-added quality".

    In a similar vein, the director of research at Barclays, Mr Leong Wai Ho, told My Paper that Singapore has never looked at using the exchange rate as a means to economic competitiveness.

    "It's not lasting, and other countries can easily do the same," he said.

    Still, Mr Leong noted that "some stabilisation" to the Singapore dollar, which is "not a weak currency to start with", would be helpful.

    "It can act as a buffer for exporters in trade channels, and open up tourism further here."

    Dr Tan Khay Boon, a senior lecturer at SIM Global Education, said that a weakened Singapore dollar will reduce the cost of expatriate labour here, and help boost the business services sector.

    He added: "More foreign students may choose to study in Singapore as well."