The Singapore dollar is expected to remain Asia's best-performing currency for the third year in a row, according to Bloomberg, driven by the Monetary Authority of Singapore's (MAS) strong exchange rate policy to fight inflation.
As one of the most traded currencies in Asia and globally (accounting for 2% of daily forex trading), the Singapore dollar benefits from the country's economic strength, political stability, and reputation as a major financial hub.
Currently, the Singapore dollar ranks third in Asia after the Hong Kong dollar and the Indian rupee. However, it is expected to soon catch up and surpass these two competitors.
According to a Bloomberg survey, Singapore's core inflation is predicted to slow to 3% in June and reach 2% by 2025, aligning with economists' forecasts and statements from MAS Managing Director Chia Der Jiun.
The strong economic growth outlook, with the second quarter GDP exceeding expectations at 2.9%, is the main reason for MAS to maintain its strong exchange rate policy, further boosting the Singapore dollar.
Despite challenges such as geopolitical tensions and higher global interest rates, MAS is optimistic that Singapore's economy will grow near the upper end of the forecast range of 1% to 3% for 2024.
Although the Hong Kong dollar and Indian rupee have been the best-performing Asian currencies in 2024, both are threatened with weakening in the coming months.
The Hong Kong dollar, which was Asia's best-performing currency in 2024, is facing a sharp correction on the back of possible interest rate cuts by the US Federal Reserve in the near future. The Indian rupee, in second place, is also showing signs of weakening as it approaches its recent low against the US dollar.
On the other hand, the Singapore dollar is likely to remain strong. This country has a unique approach to controlling inflation by managing the exchange rate of the Singapore dollar, rather than using interest rates like other countries. Therefore, a weaker Singapore dollar would lead to higher prices, while a stronger Singapore dollar would make prices cheaper and suppress inflation.
By keeping inflation low and stable, MAS provides certainty for people and businesses to make long-term plans, creating a strong foundation for Singapore's economic growth.
