Singapore Holds Monetary Policy Cites High Inflation

Singapore’s central bank stuck to its tight monetary policy stance on Monday despite weaker growth in the first quarter, saying core inflation will remain elevated as a sustained recovery in advanced economies spurs a rebound in the city-state.

In a widely expected decision, the Monetary Authority of Singapore (MAS) said it will maintain its policy of allowing a “modest and gradual” appreciation of the Singapore dollar, with no changes to the slope, width or centre of the policy band.

The central bank’s latest statement on policy came as an advance estimate of first-quarter gross domestic product (GDP) showed that Singapore’s economy grew a tepid 0.1 percent in the first quarter from the previous quarter on a seasonally adjusted, annualized basis.

That matched the median forecast in a Reuters survey and marked a sharp slowdown from 6.1 percent growth in the fourth quarter of 2013, hurt by contraction in the services sector and weakness in manufacturing.

However, growth in the city state’s economy is expected to rebound on the back of an ongoing recovery in the United States and Europe, MAS said, noting that a stretched labor market and underlying core inflation pressures justified the tight monetary policy settings.

“Barring a significant shock in the external environment, the Singapore economy should expand at a moderate pace over the course of the year. 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,” the central bank said in its half-yearly statement.

via Reuters

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