Returning capital inflows and high inflation will likely push the value of the Singapore dollar up in the months ahead, analysts have said.
They believe that when the central bank meets later this month to set the exchange rate policy, the Monetary Authority of Singapore (MAS) will continue to allow the Singdollar to appreciate mainly because inflows seem to have returned to Asia after fleeing the region from the middle of last year.
DBS' head of economic and currency research David Carbon noted that the amount of foreign reserves held by the eight major Asian economies, excluding China and India, is now around US$1.925 trillion ($2.4 trillion).
Speaking at a recent DBS investment seminar, he said: "Between August and December, when things hit the fan over the euro crisis, Asia lost US$85 billion. But since December, Asia basically regained half (US$44 billion) of that in just two months alone. So most of it is on the way back."
The Singdollar hit a record high of $1.20 against the US dollar in August last year, following strong capital inflows into Asia.
But since then, investors began moving funds out of the region, as fears over the euro debt crisis rose, pushing the Singdollar down.
This has since reversed, said Mr Carbon, and it seems as though capital inflows are back again. The Singdollar was worth $1.25 against the US dollar at press time on April 4.