MAS tightens Singdollar policy slightly in October, Singapore’s economic performance within forecast range

The Singapore central bank has increased the slope of the Singapore dollar policy band "slightly", making it the second consecutive tightening since April’s monetary policy review.

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The Singapore central bank has increased the slope of the Singapore dollar policy band "slightly", making it the second consecutive tightening since April’s monetary policy review, which was adjusted from the previous zero percent.

In the slated bi-annual October monetary policy statement issued on Friday, the Monetary Authority of Singapore (MAS) increased the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, but left the width of the band and the level at which the band is centred unchanged.

The MAS said in the statement the “measured adjustment” is consistent with a modest and gradual appreciation path of the currency policy band that will ensure “medium-term price stability.”

The central bank noted that the drivers of economic activity over the last six months have shifted. Contributions from the manufacturing sector has waned following several quarters of expansions – mainly due to the maturing of the global electronics cycle boom - while growth in the services sectors remained firm, driven mainly by the financial and business services, as well as the wholesale and retail trade sectors.

The central bank continued to add that global growth has been resilient thus far, but cautioned on the trade frictions between some major economies which could create uncertainty in the market and impact global economic activity.

In a separate report released by the Ministry of Trade and Industry Singapore today, flash estimates showed Singapore’s gross domestic product (GDP) expanding by 2.6 percent for the third quarter, slightly lower compared to the 4.1 percent increase in the previous quarter.

Singapore’s GDP growth is expected to come in within the upper half of the 2.5 percent to 3.5 percent range this year, the MAS said.

For next year, Singapore’s economic performance is likely to moderate slightly from this year but should expand at a pace “close to potential,” the MAS said, barring a significant setback in global growth. It added that the ICT, financial and business services sectors will benefit from steady regional growth and domestic digitalisation efforts, while the discretionary services sectors like retail and food services, should see some recovery.

MAS core inflation expected to edge up further in coming months

MAS core inflation, which excludes accommodation and private road transport costs, rose to an average of 1.9 percent for July and August due to stronger price increase in oil-related, food and retail items, the MAS said. The first half of the year saw core inflation expanding by 1.5 percent.

In the quarters ahead, imported inflation is likely to increase due to higher global oil and food prices, MAS said. In the report, the MAS noted that core inflation should edge up further to around 2 percent in the coming months, but for this year, it is expected to stay within the forecast range of 1.5 percent to 2 percent. For next year, core inflation is expected to average 1.5 percent to 2.5 percent.

For headline inflation, it is projected to be at about 0.5 percent for this year, before rising to 1 percent to 2 percent in 2019.

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