Market-watchers said they still expect the Monetary Authority of Singapore to allow the Singapore dollar to appreciate faster against the greenback.
That's even though there are concerns that a stronger currency will hurt exports and in turn weigh on economic growth. Analysts said they are optimistic the economy can hold its own as Singapore is now more diversified.
And with construction and services sectors at a boom, the city-state is expected to hold up.
Thio Chin Loo, Senior Currency Strategist of BNP Paribas, said: “The prospect still looks fairly good given that on the construction side we have several big projects in the pipeline and on the services industry as well, we do expect the financial services industry, tourism and related industries to hold up fairly well."
Even in its trade links, analysts said Singapore is now less dependent on its exports to the United States.
They noted that trade within Asia has picked up significantly alongside an increase in non-electronic exports like pharmaceutical products going to Europe.
The Sing dollar is expected to be allowed to appreciate at a faster clip to dampen inflationary pressures.
Some market-watchers are calling for the Sing to hit S$1.34 by the end of 2008 which translates into a gain of more than 6 per cent.
And it's not just the Sing dollar that's expected to climb.
Other regional currencies are also expected to show strength.
"I think some of the ASEAN currencies, for example the Sing dollar, the Ringgit and the Philippine peso are still very much in investors radar screens because the fundamental strength of the economies are there," said Mr Thio.
In the meantime, prices of oil and other commodities are expected to remain high.
Vishnu Varathan, Regional Economist of Forecast said: "A weaker US dollar creates a conducive environment for rallies in commodity prices and oil prices and these will be the major factors. I think this will be the over-arching factors that push inflation upwards.
Inflation in Singapore has been forecast to hit as high as 5 per cent in the first six months of 2008 before easing off in the second half. -CNA/vm
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