From MAS: "There will be no change to the slope and width of the policy band, as well as the level at which it is centred. This policy stance is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth. MAS will continue to be vigilant in assessing external economic and financial developments, and their impact on the Singapore economy"
"The appreciating stance of exchange rate policy since April 2010 has provided some restraint on the build-up of inflationary pressures, which in part reflects supply-side constraints in the economy. MAS Core Inflation receded recently but will face upward pressure from higher food and services costs. CPI-All Items inflation will remain elevated for some time."
MAS Monetary Policy Statement
The Singapore economy has weakened over the last two quarters, alongside some softening in global economic activity. According to the Advance Estimates released by the Ministry of Trade and Industry today, Singapore’s GDP declined by 1.5% on a quarter-on-quarter seasonally adjusted annualised basis in Q3 2012, following marginal growth of 0.2% in the revised Q2 data. The external-oriented sectors, including the manufacturing, wholesale and transport & storage industries, bore the brunt of the downturn. However, construction and financial services remained broadly resilient.
While there remains considerable uncertainty over the evolving fiscal situation in the US and Eurozone, recent central bank policy initiatives worldwide have reduced the risk of a severe global recession. The major industrialised economies as a whole are projected to expand at a sub-par pace in 2013, given ongoing deleveraging in both the private and public sectors. This will nevertheless be supportive of moderate growth in Asia, where domestic incomes and demand are expected to hold up. The global IT industry is also likely to register a mild recovery next year.
Singapore’s GDP growth in 2012 is expected to be in the 1.5-2.5% forecast range. Although growth in 2013 is likely to come in slightly below the economy’s potential rate, the level of output should remain above its underlying potential and the economy hence continue to be at full employment. Growth will be supported by domestic-oriented activities such as construction, and some pickup in tourism and financial services. Manufacturing and related industries are likely to regain some traction in the latter part of 2013, barring further adverse developments in the external environment.
Imported price pressures have generally been muted in recent quarters, in line with the weaker external environment and the appreciating Singapore dollar. Nevertheless, domestic costs continued to rise amid a tight labour market. Unit labour costs increased due to weak productivity growth in the services sectors. MAS Core Inflation, which excludes private road transport and accommodation costs, averaged 2.3% in July-August 2012, compared to a high of 3.1% in Q1 this year. CPI-All Items inflation moderated from 5.3% in Q2 to 3.9% in July-August, reflecting the dissipation of base effects in accommodation costs.1
Looking ahead, imported inflation, while broadly benign, will be susceptible to temporary spikes in food prices due to weather-related disruptions. Domestic supply-side factors will become more binding. In particular, persistent tightness in the labour market will support slightly stronger wage increases in 2013, which will continue to be passed through to consumer prices. MAS Core Inflation is expected to average around 2.5% in 2012 and 2-3% next year.
CPI-All Items inflation will remain elevated in Q4 2012 and Q1 2013, reflecting significant contributions from imputed rentals on owner-occupied accommodation and car prices, before moderating gradually over the rest of 2013. For the full year, CPI-All Items inflation is likely to come in slightly above 4.5% in 2012, mainly because of higher COE premiums.2 It is expected to ease gradually to 3.5-4.5% in 2013. Imputed rentals on owner-occupied accommodation and car prices will account for slightly over half of CPI-All Items inflation in both years.