S’pore Cen­tral Bank gives it­self room to tighten in 2018

The Jakarta Post - - BUSINESS - Netty Is­mail and Michelle Jam­risko

Sin­ga­pore’s cen­tral bank left mon­e­tary pol­icy un­changed on Fri­day, with­out re-com­mit­ting that its neu­tral stance was ap­pro­pri­ate for an ex­tended pe­riod, giv­ing it­self room to tighten next year if nec­es­sary.

Af­ter eas­ing three times be­tween Jan­uary 2015 and April last year, the Mon­e­tary Au­thor­ity of Sin­ga­pore (MAS) stuck to its neu­tral stance of zero ap­pre­ci­a­tion in the cur­rency, in line with the fore­casts of all but one of the 23 economists sur­veyed by Bloomberg. The MAS is the only cen­tral bank in a ma­jor devel­oped na­tion to use the ex­change rate as its main tool.

The MAS re­ferred to com­ments in its Oc­to­ber 2016 state­ment that the neu­tral stance would be ap­pro­pri­ate for an “ex­tended pe­riod,” with­out ex­plic­itly re­peat­ing that guid­ance go­ing for­ward.

“By drop­ping that, they sort of change the tone and sig­nal that they could tighten into next year but haven’t yet pulled the trig­ger,” Michael Wan, an econ­o­mist at Credit Suisse Group AG in Sin­ga­pore, said by phone. Sim­i­lar to pol­icy mak­ers in other devel­oped coun­tries, like the Euro­pean Cen­tral Bank, “they want to give them­selves space to tighten if in­fla­tion picks up be­cause of stronger growth.”

Even as the MAS keeps its op­tions open, some economists still see no ur­gency to tighten pol­icy. Wan ex­pects an­other hold when the cen­tral bank makes its next sched­uled pol­icy de­ci­sion in April.

Selena Ling, head of trea­sury re­search and strat­egy at OverseaChi­nese Bank­ing Corp. in Sin­ga­pore, said in an email that she was sur­prised by the dovish tone of the state­ment, which cited slow­ing growth and mod­est in­fla­tion. That “es­sen­tially re­in­forces that there is no need to jump the gun on tight­en­ing,” she said.

The MAS said eco­nomic growth will prob­a­bly come in at the up­per half of the 2 per­cent to 3 per­cent forecast range for this year, but ex­pand at a slightly slower pace in 2018. Prime Min­is­ter Lee Hsien Loong said in Au­gust that he ex­pected growth of 2.5 per­cent pace for this year.

In a sep­a­rate re­port on Fri­day, the trade min­istry said gross do­mes­tic prod­uct (GDP) grew an an­nu­al­ized 6.3 per­cent in the third quar­ter from the pre­vi­ous three months, beat­ing most fore­casts in a Bloomberg sur­vey. The in­crease was sup­ported by a 23.1 per­cent surge in man­u­fac­tur­ing even as con­struc­tion con­tracted 9.2 per­cent, the fig­ures showed.

Re­newed mo­men­tum in global trade, in­clud­ing a surge in elec­tron­ics, has helped trade-re­liant Sin­ga­pore re­gain its foot­ing. The ex­port strength has yet to fil­ter through to the con­sumer side, which is hob­bled by lin­ger­ing soft­ness in em­ploy­ment and a weak, but im­prov­ing, prop­erty mar­ket.

“For the rest of the year and into 2018, GDP growth in Sin­ga­pore’s ma­jor trad­ing part­ners is ex­pected to re­main firm, but could slow slightly as the global eco­nomic re­cov­ery en­ters a more ma­ture phase,” the MAS said.

Core in­fla­tion is pro­jected to come in at about 1.5 per­cent this year and av­er­age 1 per­cent to 2 per­cent next year, it said. Over the medium term, it’s ex­pected to “trend to­wards but av­er­age slightly be­low 2 per­cent,” the cen­tral bank said.

The Sin­ga­pore dol­lar fell 0.1 per­cent to S$1.3538 per green­back at 10:25 a.m. lo­cal time.

The cen­tral bank 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 doesn’t dis­close de­tails on the bas­ket, or the band or the pace of ap­pre­ci­a­tion or de­pre­ci­a­tion.

“So long as core in­fla­tion stays be­low 2 per­cent, there is no ur­gency for MAS to tighten pol­icy,” said Khoon Goh, head of Asia re­search at Aus­tralia&New Zealand Bank­ing Group Ltd. in Sin­ga­pore. “On the whole, not as hawk­ish as what the mar­ket had been ex­pect­ing, but equally can­not say it is dovish as well. It looks like the MAS is giv­ing them­selves some room to tighten next year if they see fit.”

MAS keeps mon­e­tary pol­icy in place in line with ex­pec­ta­tions GDP grew by 6.3% from pre­vi­ous quar­ter

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