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Soft finish to the Singdollar in 2017 but here's to next year

2018 expected to see internal tailwinds such as rising consumption from improved employment

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Market watchers are stirring on the possibility of the Monetary Authority of Singapore tightening its policy next year.

Singapore

THE weather here is not the only thing facing a glum December. The Singapore dollar is likely to stay muted against the US dollar in the last few weeks of 2017, economists have said.

But they agreed that the New Year is likely to bring a fresh start, with the central bank here expected to switch tacks on the exchange rate.

Market watchers are stirring on the possibility of the Monetary Authority of Singapore (MAS) tightening its policy next year. The "neutral" stance of zero appreciation, put in place last year, may be running its course.

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And a policy shift, if not set during MAS's upcoming meeting in April, could come later in October, according to Selena Ling, head of treasury research and strategy, OCBC Bank.

"For monetary policy, MAS would want to be pre-emptive, so it depends on their inflation picture one-and-a-half to two years down the road."

She added, at an outlook briefing on Wednesday: "If MAS expects inflation to be picking up 18 months from now, they will probably have to move monetary policy now."

Joseph Incalcaterra, Asean chief economist, HSBC, told The Business Times: "I think the economy in Singapore might actually look more resilient next year, even if headline growth decelerates, because this year has been driven by a lot of external factors."

While electronics manufacturing has spurred exports this year, he predicted that 2018 will bring internal tailwinds such as rising consumption from improved employment.

Speaking over the phone from Hong Kong, where he is based, Mr Incalcaterra added: "In most Asean economies, we're looking for a lot more certainty in the external environment, particularly Fed policy and the pace of growth in China in 2018."

Across the Causeway, the ringgit's rally is also expected to continue, sustained by rising oil prices and a stronger Malaysian economy, said Khoon Goh, head of Asia research, ANZ.

Bank Negara has also been tipped to raise Malaysian interest rates early next year, which HSBC's Mr Incalcaterra said would put Malaysia and Singapore at the head of the pack next year, as regional regulators mull strengthening their currencies.

Still, respite seems to be a little way off for the soft Singdollar's rebound. The biggest variables this month come from the other side of the Pacific, foreign exchange watchers believe.

Two issues expected to give a fillip to the greenback - both under hot scrutiny right now - are the Republican-led Congress' pet cause of corporate tax reform, and the United States Federal Reserve's keenly anticipated interest rate increase.

Still, Dominic Schnider, head of commodities and APAC forex, UBS Wealth Management, told BT in an e-mail: "The US Fed rate hike in December is largely expected, so its eventuality will likely be a non-event. Hence, the focus is shifting towards the language of the Federal Open Market Committee meeting next week.

"A dovish hike would bode well for the Singapore dollar, while an indication towards multiple hikes next year could give the greenback more support."

Meanwhile, Mr Goh from ANZ noted: "Over the last six years, the Singdollar has weakened against the greenback over the month of December . . . We could be on track for another year where the Singdollar loses ground into the end of the year."

In any case, he added: "Any declines will likely be modest, given the strengthening Singapore economy." And whether or not the Singapore dollar makes gains as economists hope, drastic currency swings are not in the cards, they said.

Mr Schnider wrote: "Against the greenback and the euro, the Singapore dollar should trade stably."

While it looks like a mixed bag closer to home - with the Singdollar expected to strengthen against the yen but soften against the Australian dollar - he added that "the respective appreciation and depreciation should be modest, in a one per cent to 2 per cent range over the next three months".

The Singdollar traded at S$1.35 to the greenback on Friday and against the ringgit, was trading at about RM3.02.

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