Singapore’s Semi-Annual Monetary Policy Review
October 12, 2012
The global economy is likely to experience an extended period of slow growth. Against this backdrop, the Singapore economy should continue to expand but at a modest pace in 2012 and 2013. The labor market should remain tight.
The appreciating stance of exchange rate policy since April 2010 has provided some restraint on the build-up of inflationary pressures, which in part reflects supply-side constraints in the economy. MAS Core Inflation receded recently but will face upward pressure from higher food and services costs. CPI-All Items inflation will remain elevated for some time.
MAS will therefore maintain the policy of a modest and gradual appreciation of the S$NEER policy band. There will be no change to the slope and width of the policy band, as well as the level at which it is centered. This policy stance is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth. MAS will continue to be vigilant in assessing external economic and financial developments, and their impact on the Singapore economy.
In Singapore, interest rate policy is subordinated to exchange rate guidance, and the stance is reviewed only twice a year in April and October. Policy was tightened in April 2012 when the slope of the Singapore dollar’s trading band was steepened. That move reversed a flattening of the slope announced in October 2011. Policy previously had been tightened at both reviews in 2010 and also in at the review in April 2011.
According to a statement released today, policy initiatives from advanced economies lessen the risk of a severe global recession. Singapore’s economy will expand more slowly than its potential trend, but the level of output now exceeds that trendline. In fact, GDP contracted last quarter, but growth in 2Q12 was revised into the black from a negative figure reported initially. Many analysts thought the Monetary Authority of Singapore was going to ease today, since that is the direction being taken by quite a few other central banks in emerging markets.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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