Singapore keeps currency stance as economic growth slows
singapore — Singapore’s central bank maintained its pace of currency appreciation, seeking to support growth while guarding against inflation as the economy expanded less than analysts estimated last quarter.
Gross domestic product rose an annualised 0.1 per cent in the three months through March from the previous quarter, when it expanded 6.1 per cent, the trade ministry said in a statement on Monday. The median estimate in a Bloomberg News survey of 14 economists was 0.4 per cent. The central bank, which uses the island’s dollar to manage price pressure, said it will maintain a modest and gradual appreciation of the currency.
Singapore’s slowing growth underscores the risk that Asia’s economic outlook will be damped by an uneven global recovery, with the International Monetary Fund this month cutting its forecast for worldwide expansion in 2014 and urging emerging markets to prepare for flows of capital back to advanced economies. The island is also grappling with a labour crunch as a move to reduce reliance on cheap overseas workers and boost productivity has raised wage costs.
“It does suggest that the year starts off on a fairly tepid tone,” Selena Ling, a Singapore-based economist at Oversea-Chinese Banking, said in a Bloomberg Television interview with Angie Lau. “We do see some of the manufacturing and export recovery coming through for Asia, but it’s on a fairly weak tone.”
The Singapore dollar fell 0.2 per cent to S$1.2512 against its US counterpart as of 10:08 a.m. local time. The currency has strengthened almost one per cent this year.
‘Moderate’ pace
Quarterly growth was the slowest in six quarters, based on data compiled by Bloomberg. The economy expanded 5.1 per cent in the first quarter from a year earlier, after growing 5.5 per cent in the previous three months, the trade ministry said on Monday. The median estimate in a Bloomberg survey was for a 5.4 per cent gain. The government has forecast expan- sion of two per cent to four per cent this year.
Singapore’s growth will be capped by supply-side constraints, particularly in the labor market, the central bank said on Monday. Trade-related sectors should ex- pand “at a moderate pace,” while domestic-oriented activities are expected to “stay resilient, supported by construction of transportation, housing and social infrastructure,” it said.
The central bank guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of the band. A flatter slope allows slower appreciation or depreciation over time.
All 23 analysts surveyed by Bloomberg said the Monetary Authority of Singapore, which uses the exchange rate rather than borrowing costs as its main policy tool, would let the local dollar stay on a “modest and gradual” appreciation path. Singapore’s inflation eased to 0.4 per cent in February, the slowest pace in more than four years. A central bank survey of economists and analysts released last month forecast consumerprice gains to quicken to 2.8 per cent this year from 2.4 per cent in 2013. —