Singapore keeps monetary policy unchanged, Q3 GDP jumps

Nopporn Wong-Anan

Singapore’s central bank kept its loose monetary policy unchanged on Monday, citing uncertainty over the sustainability of its economic recovery or demand for exports and expectations of limited inflation next year.

The move came as the economy expanded a better-than-expected 0.8 percent in the third quarter of 2009 from a year earlier, returning to growth after three quarters of annual contraction, government preliminary data showed.

“MAS will continue to be vigilant over developments in the external environment including the medium-term risk of stronger global inflationary pressures,” the Monetary Authority of Singapore (MAS) said in a statement.

The Monetary Authority of Singapore sets policy by managing the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.

The currency dipped in early deals after the central bank review. At 0034 GMT, the Singapore dollar was quoted at 1.3981 per U.S. dollar, about 0.2 percent weaker than Friday’s close and compared to levels of 1.3950 just before the policy announcement.

Singapore’s economy continued its robust growth in the third quarter as the base of the recovery extended beyond pharmaceuticals into the wider manufacturing and services industries. GDP grew 14.9 percent from the previous quarter on a seasonally adjusted basis.

The central bank forecast consumer price inflation next year in a range of 1 to 2 percent, from around zero percent this year. It said there could be some upward pressure from higher oil and food prices, though underlying domestic cost pressures will be contained.

“Inflationary pressure is still benign, growth is showing steady improvement. But overall economic fundamentals and external conditions are still below the historical trend, or where MAS would extend a tightening policy,” said Irvin Seah, economist at DBS Group in Singapore.

The government lifted its forecast for 2009 GDP to a contraction of between 2.5 to 2 percent, from an earlier forecast of a contraction of 6 to 4 percent.

“Against continuing weakness and uncertainties in the external economic environment, the strength of the recovery in the Singapore economy is expected to be moderate beyond the initial uplift,” the central bank said.

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