Singapore Dollar to Rise to Record, BNP Paribas Says

Aug. 6 (Bloomberg) -- The Singapore dollar may rise 10 percent to a record in a year as an influx of tourists and bankers supports economic growth, BNP Paribas SA said.

The currency may reach S$1.38 per dollar by June 30, passing the record of S$1.3835 reached in 1995, as the Monetary Authority of Singapore seeks gains to curb inflation, said Thio Chin Loo, senior foreign-exchange strategist in Singapore at France's largest bank by market value.

Appreciation in the Singapore dollar slowed to 1 percent this year, from 8.5 percent last year, as a global semiconductor glut caused electronics production to stagnate. The slack was taken up by drugs production, asset management and construction. The city this year started building a Las Vegas Sand Corp. casino and a gaming resort with a Universal Studios theme park.

``Efforts to try to draw investment into entertainment, education and financial services will continue to prop up the economy,'' said Thio. ``Growth is strong and inflation is on the rise.''

The Singapore dollar was at S$1.5187 against the U.S. dollar at 1:55 p.m. local time from S$1.5176 late in Asia on Aug. 3. BNP Paribas has the most bullish forecast of 24 financial institutions surveyed by Bloomberg News. It predicts S$1.42 for year-end, compared with the median estimate of S$1.50.

The Monetary Authority bank targets the exchange rate instead of interest rates to control price gains, as a stronger currency cuts import costs and curbs export earnings. In April, it reaffirmed a three-year policy of a ``modest and gradual'' appreciation of the Singapore dollar.

Export Outlook

The central bank, in its annual report released July 25, said policy makers need to remain alert on prices. It said inflation this year may be at the upper half of its 0.5 percent to 1.5 percent range and reach as high as 2 percent next year.

The government increased the goods and services tax to 7 percent from 5 percent on July 1, which will add as much as 0.6 percent to consumer prices next year, the central bank said.

The Singapore dollar fell 0.9 percent in the second quarter on concern a U.S. housing slump will restrain growth in the world's largest economy, curbing demand for the island's exports.

International Enterprise Singapore, the government's trade promotion body, last month cut its 2007 export growth forecast after an eighth decline in electronics shipments in nine months. It now expects between 4 percent and 6 percent growth in non-oil exports, from a 7 percent to 9 percent range in January.

``Housing concerns may escalate and threaten the U.S. growth outlook and impact Asia,'' said Emmanuel Ng, a currency strategist at Overseas-Chinese Banking Corp. in Singapore. ``Any Singapore dollar strength may be contained'' to S$1.4900 against the U.S. currency by year-end and S$1.4850 by June, Ng said.

Cars, Casinos

A Formula One race through the city, scheduled for September 2008, is among attractions planned to support economic growth. The government wants to double overseas visitors to 17 million by 2015.

The island-state also last year awarded two casino licenses to Las Vegas Sands, the world's largest casino company by market value, and Genting Bhd., Asia's biggest operator, which plans a Universal Studios theme park larger than that in Los Angeles.

Average hotel room rates surged to a record in June, surpassing S$200 ($132) for the first time, the Singapore Tourism Board said last month. More than 4.9 million tourists have visited Singapore this year.

``Hotels and restaurants are doing very well,'' said Philip Wee, senior currency economist at DBS Group Holdings Ltd., Southeast Asia's largest bank. ``The Singapore dollar will resume its appreciation,'' reaching $1.49 by year-end, he said.

More Millionaires

The government is also hiring teachers and extending its subway, predicting the population will rise 44 percent to 6.5 million. Singapore cut its corporate tax rate to 18 percent from 20 percent to narrow the gap with Hong Kong's 17.5 percent rate.

Singapore had the world's biggest growth in the number of millionaires, rising 21 percent last year, a global survey by Capgemini SA and Merrill Lynch & Co. showed in June. The central bank forecasts the economy will expand as much as 7 percent this year, led by growth in financial services.

The city's expansion has caused inflationary pressures as electricity tariffs rise and employers offer bigger salaries to fill job vacancies. Average wages before accounting for inflation rose 5.5 percent in the first quarter, faster than the 3.1 percent rate of increase in the last three months of 2006.

Singapore's price index of private residential property rose 8.3 percent in the second quarter from the first to 147.8, the highest in almost a decade, the Urban Redevelopment Authority said last month. Rents of private homes climbed 10 percent from the previous three months, the URA also said.

Singapore's inflation data are ``understating'' the housing boom, said Glenn Maguire, chief Asia economist in Hong Kong at Societe Generale SA, France's second-biggest bank. ``The risks are to the upside.''

The Singapore dollar may advance to S$1.50 against the U.S. dollar this year, Maguire said.