Sat, Apr 15, 2023 page10

• Singapore halts run of policy tightening

  • Bloomberg
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  The Monetary Authority of Singapore (MAS) yesterday kept its monetary policy settings unchanged after five straight tightening moves since October 2021, joining a growing list of central banks that have opted to pause amid global growth risks and ebbing inflation.

  The bank, which uses the exchange rate as its main policy tool, maintained the slope, center and width of the currency band, it said in a statement.

  The decision came at the same time as GDP data that showed the economy contracted more than expected in the first quarter.

  

  People walk in the central business district in Singapore yesterday.

  Photo: EPA-EFE

  Ten of 22 respondents in a Bloomberg survey had predicted the decision, while the remaining 12 had expected a tightening.

  “With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated,” the central bank said. “While inflation is still elevated, MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases.”

  “The effects of MAS’ monetary policy tightening are still working through the economy and should dampen inflation further,” it said.

  The pause, despite price gains lingering at a 14-year high, shows that policymakers are watching for more signs of economic weakness that would tend to cool inflation naturally.

  With that, the MAS joins peers in Australia, Canada, India, Indonesia and South Korea in holding policy settings, while others, including the European Central Bank, near the end of their tightening cycles amid financial sector volatility.

  Already, the city-state’s GDP shrank 0.7 percent in the first quarter from the October-December period, its worst contraction since the three months to June of 2021.

  The manufacturing sector fared the worst because of output decline, falling 6 percent from a year earlier.

  The Singapore dollar weakened 0.35 percent following the decision, indicating that some investors were hoping for further tightening.

  Singapore’s GDP growth is projected to moderate significantly this year, in line with the global goods and investment cycle downturn and as demand boosts from reopenings after COVID-19 pandemic restrictions eased, the monetary authority said in the statement.

  A “sharp downturn” in the global electronics industry would have outsized impact on the region, where the sector has significant production and trade presence.

  That threatens trade-reliant Singapore’s view that it can avoid a recession. The city-state expects to grow anywhere between 0.5 and 2.5 percent this year — a forecast that was reiterated yesterday.

  It also expects exports, which are more than one-and-a-half times the nation’s GDP, would decline 2 percent this year in the worst-case scenario and post zero growth in the best case.

  Core inflation — most closely tracked by the MAS — will remain elevated in the next few months, but should progressively ease in the second half of 2023 and end the year significantly lower, the central bank said.

  The MAS’ hold on policy suggests that it is bracing for a sharp global slowdown.

  If growth and core inflation in the city state slow significantly in the second half of the year — as the central bank forecasts — the conditions may be in place for it to ease at its next meeting in October, said Tamara Henderson, a Bloomberg economist for ASEAN.
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