Singapore seen keeping currency appreciation on inflation risks. Tuesday, 08 October 2013 09:29 The Monetary Authority of Singapore will probably refrain from easing monetary policy this month as taming inflation takes priority over reviving economic growth. The central bank, which uses the exchange rate rather than borrowing costs as its main policy tool, will keep the current stance of a “modest and gradual” appreciation in the Singapore dollar and refrain from adjusting the trading band on Oct. 14, according to 19 of 21 analysts surveyed by Bloomberg News. The economy probably contracted last quarter, another survey showed. Singapore is grappling with persistent price risks even as Asia’s growth outlook falters with the World Bank and Asian Development Bank cutting economic forecasts this month. The island has resisted any monetary easing since October 2011 as a tight labor market and persistent demand for homes spurs inflation risks. “Core inflation is still very much on the radar and looks likely to trend higher,” said Alvin Liew, a Singapore-based economist at United Overseas Bank Ltd., referring to price gains excluding private transport and accommodation costs. “Growth isn’t fantastic, but it is still within the expected range of the government’s forecast.” Gross domestic product fell an annualized 4.1% in the three months ended Sept. 30 from the previous quarter, according to the median of 12 estimates in a Bloomberg News survey before a report due the same day as the monetary policy statement. The $275 billion economy expanded 3.8% from a year earlier, according to the median of 15 estimates. Prime Minister Lee Hsien Loong forecasts economic growth of 2.5% to 3.5% this year. CURRENCY CLIMBS The Singapore dollar has risen 2.7% in the past three months against the U.S. dollar, the biggest gainer among Southeast Asia’s biggest economies. The gain compares with a more-than-13% drop in the rupiah and a 0.3% decline in the Thai baht. The currency traded at $1.2478 against its U.S. counterpart late yesterday. The island nation’s current-account surplus shielded it in recent months as speculation the U.S. Federal Reserve will start scaling back stimulus spurred a rout in other Asian currencies. The Singapore dollar will probably be at $1.255 by Dec. 31 and $1.26 by mid-2014, according to the median estimate in the survey for this month’s policy decision. The MAS adjusts the Singapore dollar’s pace of appreciation or depreciation against an undisclosed trade-weighted basket of currencies by changing the slope, width and center of the band. A flatter slope allows slower gains or depreciation over time. GROWTH CATALYST Most analysts in the Bloomberg survey predict the authority will keep the slope, width and center of the trading band unchanged at the twice-yearly policy review next week. A minority predict some easing in policy. ING Groep NV said the central bank may slow gains in the local currency by reducing the band’s slope. Commonwealth Bank of Australia said the central bank may shift to a zero slope. “Growth momentum isn’t picking up as much as the central bank expected in the last meeting, whereas inflation is nowhere to be seen,” said Andy Ji, a Singapore-based currency strategist at CBA. “Why not just give growth a little bit of a catalyst?” Singapore’s non-oil domestic exports fell for a seventh straight month in August from a year earlier. The World Bank yesterday lowered its forecasts for East Asia’s developing economies this year and next, led by weaker growth estimates for China, the region’s biggest economy. At the same time, Singapore’s inflation accelerated to a five-month high of 2% in August on food and housing, after easing from more than 5% mid-2012. Domestic cost pressures are expected to persist “amid continuing tightness in the labor market,” according to a central bank and trade ministry statement last month. “Inflation, while moderating to more comfortable levels, is still not at the stage where the MAS will want to comfortably loosen policy,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “The status quo seems to be the most comfortable place for them to be.”
Posted on: Tue, 08 Oct 2013 23:53:39 +0000
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