Forex Flash: A case for modest SGD appreciation in 2013 – ANZ (Barcelona) - Singapore’s export sector has lagged its regional peers, which have either seen exports stabilizing or showed signs of a rebound since late 2012. According to FX Strategists Khoon Goh and Irene Cheung at ANZ, “Apart from a challenging demand environment for Singapore’s exports, we also note that the government’s ongoing restructuring drive to boost productivity while curbing foreign workers’ intake has contributed to labor shortage and sustained wage pressures in the short-term.

What has attracted little attention is the increase in application and issuance/ renewal 18. fees for foreign worker permits, to take effect from 1 April. This will further increase the cost of hiring and retaining foreign workers, at a time when the unemployment rate is already very low at 1.9%, adding further pressure on business costs.

Moreover, “We expect the MAS to keep to its gradual, modest SGD NEER appreciation policy in the April policy review.” the Strategists add. Although our economists have revised down their 2013 headline CPI inflation forecast from
4.0% y/y to 3.4%, the risk is that sustained pressure in wages and transport costs will continue to feed, directly and indirectly, into core inflation. While maintaining the current policy stance is supportive of the SGD, the policy will keep the Singapore economy lagging behind growth for the rest of Asia.