Singapore, which had a record first-half expansion, said economic activity would probably remain at “high levels” for the rest of the year, adding pressure on business costs and spurring inflation.
Growth is supported by a broad range of industries that will remain “largely intact” this year, the Monetary Authority of Singapore (MAS) said in its annual report yesterday. The central bank said it would issue as much as S$20 billion (US$15 billion) in bills starting next year as a new instrument in money-market operations to help lenders manage liquidity.
“For Singapore, the underlying support for growth for the rest of 2010 is expected to remain largely intact and economic activity is likely to be sustained at high levels,” the central bank said in the report. “However, if the crisis in Europe worsens, financial contagion spreads and the functioning of the international credit markets becomes impaired, downside risks to global growth could intensify.”
The MAS has for three decades used the currency rather than a benchmark interest rate as its main tool for managing inflation. At its April monetary policy review, the central bank said it would shift the Singapore dollar to a stronger range to trade in and allow a gradual appreciation.
While inflation is forecast to pick up toward the latter part of the year, “at this stage, we assess that the current monetary policy stance of a modest and gradual appreciation” of the currency band remains appropriate, MAS Managing Director Heng Swee Keat (王瑞傑) said.
The central bank predicts inflation will probably average between 2.5 percent and 3.5 percent this year.
Singapore’s inflation is likely to accelerate and policy makers should stay vigilant on the outlook for growth and prices, which may require the “further calibration” of monetary policy, the IMF said on Friday last week. In its annual assessment of the country’s economy, the IMF said the Singapore dollar appeared “somewhat weaker” than its medium-term equilibrium level.
The government expects the Southeast Asian island’s economy to expand 13 percent to 15 percent this year. Growth accelerated to 18.1 percent in the first half, the fastest pace since records began in 1975.
“The strong pace of growth seen in the first half of this year is not expected to be sustained,” Heng said. “Growth is likely to have peaked at the middle of this year, and will moderate to a more sustainable rate, as external demand slows after the post-crisis bounce from stimulus measures and inventory effects wane worldwide.”
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