Singapore dollar weakness feared to dent appetite for overseas trips

The outbound travel market grew 6.7% in Q1.

The central bank’s decision to adopt a neutral monetary policy may dampen Singapore’s burgeoning outbound travel market.

“To domestic consumers, it means imported products will become more expensive, and it will probably dampen the enthusiasm for overseas trips,” says Margaret Yang, analyst at CMC Markets.

Data from GfK show that the Singapore outbound travel market in first quarter this year grew 6.7% year-on-year, driven by the Singapore dollar’s relative strength against regional currencies.

The top two destinations for outbound travellers remain as China, Thailand while Hong Kong has replaced Indonesia in third position this year. Countries reporting double digit growth in overseas visitors were Japan, Hong Kong and Vietnam respectively.

Within the developed markets, Japan had experienced the highest growth due to currency exchange effects against the Singapore dollar which makes the country more attractive in terms of spending power for Singapore travellers.

GfK said that overall sentiments for outbound travel bookings in the first quarter of the year have improved.

However, given the recent financial turmoil and rising global oil prices adding pressure on aviation companies, rising travel costs may slow down the growth traction in the earlier part of the year and paint a different picture as we move into further into 2016, GfK warned.

In an unexpected move last week, the Monetary Authority of Singapore (MAS) decided to flatten the slope of its policy band. Analysts say that the decision reflects the central bank's concerns not only over the city-state's very modest growth and inflation outlooks, but also over its lagging competitiveness.

“The MAS's more dovish stance on the Singapore dollar strengthens our case for the SGD to underperform its regional EM FX peers over the remainder of 2016,” BMI Research said in a report.

“The MAS is likely looking to restore some competitiveness to the Singapore dollar, which has outperformed its peers significantly since the global financial crisis in real effective terms,” BMI Research added.