Fri, Apr 14, 2017 - Page 10 News List

Singapore retains neutral monetary policy

Bloomberg

Workers rest on a floating structure in the Marina Bay, Singapore, yesterday.

Photo: EPA

Singapore’s central bank yesterday left monetary policy unchanged after the economy contracted in the first quarter, saying the neutral stance is appropriate for an extended period of time.

Trade-reliant Singapore lost some of its momentum in the first quarter, contracting an annualized 1.9 percent from the previous three months, preliminary data from the government showed.

While the economy is benefiting from a pick-up in exports, domestic-focused industries, such as retail and construction, remain weak, giving the central bank room to keep its policy neutral.

The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main policy tool, shifted to a zero appreciation stance for the currency in April last year.

Investors had been looking for clues that the central bank may shift to a tightening stance at its next meeting in October amid an improving global economy.

The bank indicated it was not in a rush to do so, saying “a neutral policy stance is appropriate for an extended period and should ensure medium-term price stability.”

“Those hoping for a hawkish hint for October are likely to be disappointed by the retention of the MAS view,” said Sean Callow, senior strategist at Westpac Banking Corp in Sydney.

The trade-weighted Singapore dollar “might drift back towards the center of the band but there’s no need for a sharp reaction near term,” Callow said.

The MAS guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of a currency band. It does not disclose details on the basket, the band, or the pace of appreciation or depreciation.

GDP figures are often volatile in Singapore.

Manufacturing contracted an annualized 6.6 percent in the first quarter from the previous three months, when it surged almost 40 percent.

The services industry, which makes up about two-thirds of the economy, fell 2.2 percent.

Compared with a year ago, GDP rose 2.5 percent in the first quarter, slightly lower than the 2.6 percent median estimate in a Bloomberg survey.

“Despite the pullback in the first quarter, the underlying momentum in the economy remains intact, with output of electronics and its related services segments still at healthy levels,” the MAS said, sticking to its forecast for growth of between 1 percent and 3 percent for this year.

The central bank also kept its inflation forecast unchanged at 0.5 percent to 1.5 percent for this year.

Domestic sources of inflation are “relatively muted” because conditions in the labor market remain weak, curbing wage pressures, the MAS said.

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