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Thursday, 13 November 2008

S$ to weaken against US$

THE Singapore dollar is set to weaken sharply to $1.80 against the greenback within the next year, leading United States investment bank Morgan Stanley has predicted.

On Wednesday night, the exchange rate was about S$1.50 to the US dollar.

Morgan Stanley believes Singapore, like many export-oriented nations, will experience a more than expected weakness in its currency ahead.

However the Government is likely to endorse this currency weakness in order to support exports amid the global downturn. A weaker Singdollar generally makes exports relatively cheaper.

Mr Stephen Jen, the US bank's global head of currency research, made the prediction here on Wednesday at the Morgan Stanley Asia Pacific Summit.

He said the weakening of the local unit will be the result of not only a resurgent US dollar, but also an aggressive policy by the Monetary Authority of Singapore (MAS) to protect this export-oriented economy during the global slowdown.

This is necessary to deal with what he called the 'changing realities' in the world economy led by the slowdown in China and contractions in the US, Europe and Japan. These changes are likely to lead to further weakness in export demand, on which Singapore's economy is highly dependent.

He said, 'Singapore exports will collapse like everywhere else, so I wouldn't expect anything other than an aggressive reaction from the MAS.'

The central bank shifted to a neutral exchange rate policy last month amid a deep slump in exports.

If exports continue to weaken, economists expect the MAS to intervene again ahead of its meeting next April.

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