Singapore sticks to tight monetary policy despite disappointing growth

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Singapore sticks to tight monetary policy despite disappointing growth

PUBLISHED : Tuesday, 14 October, 2014, 11:26am
UPDATED : Tuesday, 14 October, 2014, 11:26am

Reuters in Singapore



The Monetary Authority of Singapore has lowered its forecast for core inflation to an average of 2 to 2.5 per cent in 2014, down from 2 to 3 per cent previously. Photo: Bloomberg

Singapore’s central bank cut its forecasts for headline and core inflation this year but stuck to its tight monetary policy as expected on Tuesday, saying core inflation is likely to stay above its historical average over the next few quarters.

In a widely expected decision, the Monetary Authority of Singapore said it would maintain its policy of allowing a “modest and gradual” appreciation of the Singapore dollar, with no changes to the slope, width or centre of the policy band.

The central bank kept its policy unchanged even as economic growth in the third quarter came in below market expectations, with gross domestic product expanding 1.2 per cent from the previous quarter on an annualised and seasonally adjusted basis.

The median forecast in an analyst survey had been for quarter-on-quarter growth of 1.8 per cent.

“The Singapore economy should expand at a moderate pace in the quarters ahead. Wage inflation is likely to remain relatively firm, and businesses in food-related and some services sectors could further pass on cost increases,” the monetary authority said in its half-yearly statement.

“Consequently, [the authority’s] core inflation is projected to stay above its historical average over the next few quarters even as inflation remains subdued.”
Wage inflation is likely to remain relatively firm, and businesses could further pass on cost increases
Monetary Authority of Singapore

The central bank lowered its forecast for core inflation to an average of 2 to 2.5 per cent in 2014, down from 2 to 3 per cent previously, and said core inflation was likely to come in at 2 to 3 per cent next year.

It also cut its 2014 all-items inflation forecast to 1 to 1.5 per cent from 1.5 to 2 per cent, adding that headline inflation was forecast at 0.5 to 1.5 per cent in 2015.

The authority had been widely expected to maintain its tight policy of allowing a “modest and gradual” appreciation of the Singapore dollar and keep all policy settings unchanged as core inflation has picked up.

“On the global stage, there are some uncertainties starting to crop up, like the timing of the US rate [rise], and that could feed through to Singapore going forward and guide [the authority] towards an easing of policy. But as things stand today, their stance is appropriate,” RBS economist Vaninder Singh said.





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