Sunday, April 13, 2014

Singapore maintains FX policy, ready to curb volatility

    Singapore's central bank maintained its policy stance of a "modest and gradual appreciation" of the Singapore dollar to contain domestic and imported inflation and thus ensure price stability, but cautioned that it was ready to "curb excessive volatility" in the exchange rate.
    "Barring a significant shock in the external environment, the Singapore economy should expand at a moderate pace over the course of the year," said the Monetary Authority of Singapore (MAS), which targets the Singapore dollar against a basket of currencies of key trading partners as a instrument to control inflation.
    "Wage pressures will persist and firms are likely to pass on business costs to consumer prices. Consequently, MAS core inflation is expected to stay elevated," MAS added.
    Despite weak growth in the first quarter, MAS said economic activity should stay on a broad upward trajectory for the rest of the year with the economy expanding by 2-4 percent in 2014 and unemployment remaining low. In 2013 the economy grew by 4.1 percent.
    Singapore's Gross Domestic Product expanded by only 0.1 percent in the first quarter from the fourth quarter for annual growth of 5.1 percent, down from 5.5 percent in the fourth quarter.
    MAS attributed modest growth in the first quarter to dampened demand for Singapore's exports from bad weather in the U.S. while financial services were hit by the negative sentiment in global financial markets as the Federal Reserve started tapering its asset purchases.
    "In comparison, growth in the domestic-oriented sectors, including construction, remained firm," MAS said.
   The monetary authority was upbeat about the prospects for the global economy, saying the outlook had brightened, with a recovery of the U.S. labour market supporting consumer spending, the euro zone emerging from two years of contraction and a mild turnaround in the global information technology industry buttressing growth in Asia, ex-Japan, even as domestic demand in the Asian region softens and China's growth slows.
    "The Singapore economy is expected to grow at a moderate pace  in 2014, supported by the cyclical uplift in the industrialized economies," MAS said.
    Global inflation pressures are expected to remain benign this year given the ample supply buffers in commodity markets and modest inflation in most of Singapore's import source countries. But domestic cost pressures, particularly from a tight labour market, are likely to remain the main source of inflation.
    Singapore's all-items inflation rate fell to 0.4 percent in February from 1.4 percent in January but MAS expects it to rise in coming months from a low base but then ease in the second half of 2014.
    MAS revised its 2014 forecast for inflation to 1.5 to 2.5 percent from a previous forecast of 2 to 3 percent, mainly due to the weaker outlook for imputed rentals over the rest of the year. In 2013 Singapore's consumer prices rose by 2.4 percent.
    But core inflation, which excluded private road transport and accommodation costs, is expected to average 2 to 3 percent this year, up from 1.7 percent in 2013, MAS said. In February it eased to 1.6 percent from 2.2 percent.
    "MAS will therefore maintain its policy of a modest and gradual appreciation of the S$NEER policy band," the monetary authority said. "There will be no change to the slope of the policy band, and the level at which  it is centered. The width of the band will be kept unchanged."
    The Singapore dollar has strengthened since mid-March this year but fell following the MAS' statement. On Friday the S$ was trading at 1.248 to the U.S. dollar but it fell to 1.252 after the release of the statement. But since the end of 2013, the S$ has gained 0.8 percent, ending last year at around 1.262 to the U.S. dollar.


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