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SCMP Reporter

The Singapore dollar is expected to undergo further depreciation in coming months despite a S$10 billion (about HK$46.11 billion) corporate cost-cutting package.

 The depreciations are expected to come as the republic tries to regain its export competitiveness.

 Many analysts are predicting the currency will tumble from its present level of about S$1.68 to the US dollar to beyond $1.70 in coming weeks, and doubt the Monetary Authority of Singapore will stand in its path.

  Barclays Capital, which is the most bearish, said a weak currency policy would be the government's most 'prudent' response to Singapore's waning growth.

 It forecasts the Singapore dollar could weaken to as low as S$2 against the US dollar.

  Singapore's electronic exporters, in particular, have suffered a tough time of late trying to sell their wares into the all-important United States market in the face of cut-price competition from Taiwanese, Malaysian and South Korean manufacturers.

 With its economy suffering disinflation, the Singapore Government need not worry much about higher import costs.

 Standard Chartered Bank treasury economist Andrew Fung said: 'Going to S$1.70 and a bit beyond is probably well within their comfort zone.'  Jimmy Koh, currency analyst at Independent Economic Analysis, said: 'We expect the government to embark on a similar policy option mix to what it did for the 1985 recession to help Singapore regain lost export competitiveness.'   To reignite its ailing economy in the mid-1980s, the government indulged in a combination of cost-cutting and pump-priming measures, while allowing the currency to depreciate about 10 per cent.

 While the Singapore dollar is worth 15 per cent less since the onset of the Asian currency crisis 18 months ago, its neighbours' currencies have depreciated by far more.

  To help restore the balance in terms of competitiveness, Singapore has been urged to instigate a 15 per cent wage cut as of this month as part of a S$10 billion package of business cost-cutting measures planned for this year.

 However, this is only seen as going part way to solving the problem.

 Standard & Poor's MMS International general manager Andy Tan said: 'There is no contradiction in having a weaker currency in combination with cost-cutting measures to improve export competitiveness.'  A weaker Singapore dollar will also support the low interest rate environment being pushed by the authorities.

  Five rounds of interest rate cuts by the leading banks have resulted in prime rates falling from 7.5 per cent to about 5.5 per cent since September last year.

 The government has been firing up its Singapore dollar bond market both in terms of depth and breadth.

  There will be 10 Singapore dollar issues this year compared with six last year.



Singapore dollar to weaken further in drive for export competitiveness