Singapore's central bank maintained its policy stance, saying it expects the economy to continue to expand this year and into 2014 though "some volatility in growth rates is likely" in light of the uncertainties that currently characterize the international environment.
The Monetary Authority of Singapore (MAS), which targets the Singapore dollar against a basket of foreign currencies as a way to control inflation, said it would "maintain its policy of a modest and gradual appreciation of the S$NEER policy band. There will be no change to the slope of the policy band and the level at which it is centred."
MAS added that the current width of its trading band for the Singapore dollar was considered sufficient to accommodate temporary fluctuations and would thus be maintained.
"Barring a significant deterioration in global demand conditions, the labour market will remain tight, and exert further upward pressures on MAS core inflation as firms pass on accumulated costs to consumer prices," MAS added.
Singapore's Gross Domestic Product contracted by 1.0 percent in the third quarter from the second quarter on an seasonally adjusted annualised basis, MAS said, referring to advance estimates by Singapore's trade and industry ministry.
But incoming data suggests that the recovery in the global economy is continuing and Singapore's external-oriented sectors are expected to see a modest uplift while domestic-driven sectors, such as construction, healthcare and education remain resilient.
"Overall GDP growth is projected at 2.5-3.5 percent in 2013, and is unlikely to be significantly different in 2014," MAS said, adding that the labour market should remain at full employment.
Singapore's headline inflation rate inched up to 2.0 percent in August from 1.9 percent in July while the authority's gauge for core inflation rose to 1.8 percent from 1.6 percent.
"While global demand conditions will strengthen, spare production capacity in the advanced economies and ample supply buffers in commodity markets should keep a lid on imported inflation," MAS said, adding that core inflation is expected to rise to 2-3 percent next year from 1.5-2.0 percent this year and the unemployment rate remains below its historical average and the pass-through of domestic costs to prices of consumer services could intensity.
In July MAS revised down its forecast for 2013 CPI-All items inflation to 2-3 percent from its previous forecast of 3-4 percent in light of a sharp fall in car prices following the announcement of financing restrictions on motor vehicle loans.
It said that it is currently expecting all-items inflation to come in a the upper range of its 2-3 percent forecast and for 2014 it is also forecasting all-items inflation at 2-3 percent.