Singapore’s tighter monetary policy is “appropriate” as the island’s economic recovery is becoming more entrenched, Trade Minister Lim Hng Kiang said.
Shiyin Chen
Bloomberg
Singapore’s tighter monetary policy is “appropriate” as the island’s economic recovery is becoming more entrenched, Trade Minister Lim Hng Kiang said today.
“We expect some inflationary pressures to emerge as the economy recovers,” Lim, who is also deputy chairman of the Monetary Authority of Singapore, said in response to questions in parliament today. “Wage pressures will build as the labor market tightens, while asset values could rise in tandem with the improvement in economic fundamentals,” and rising commodity prices could push up producer and consumer prices, he said.
Singapore’s central bank said April 14 it would undertake a one-time revaluation and seek a gradual and modest appreciation of the currency, joining other Asian nations in tightening monetary policy as the region leads a global rebound. Industrial production grew 43 percent in March, a report showed today, beating the 30.3 percent median forecast in a Bloomberg survey.
The economy expanded an annualized 32.1 percent in the first quarter from the previous three months, the most since at least 1975.
This month’s “policy decision is appropriate considering the Singapore economy has recovered strongly from the global financial crisis and is expected to continue on a firm path,” Lim said. “The effects of the overall shift in policy stance works with a lag and economic activity is already beyond pre- crisis levels. Thus it is timely to unwind the policy that was put in place during the downturn.”
‘Urgent action’
Asian central banks from India to Malaysia have raised interest rates this year to fight inflation and avert asset- price bubbles. The Monetary Authority of Singapore uses the currency instead of interest rates to conduct monetary policy.
Emerging markets need to take “urgent action” on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, Standard Chartered Plc said in a report published today. Greater currency flexibility, tighter monetary policy and some capital controls are among measures that can be taken to help manage the inflows, it said.
Singapore’s home prices rose 5.6 percent in the three months ended March 31, following a gain of 7.4 percent and 16 percent in the previous two quarters, the Urban Redevelopment Authority said April 23.
While the exchange rate is Singapore’s “key lever,” policy makers can also use administrative measures with regards to asset prices, Lim said. “We’re watching the situation very carefully,” he said.
Property measures
The government said last month it will release a larger supply and wider variety of land for developers in the second half of this year as it sought to cool the property market. The island has barred interest-only mortgages for uncompleted homes and stopped allowing developers to absorb interest payments for apartments under construction to deter speculative purchases. It also levied a seller’s stamp duty on residential properties and land sold within one year after purchase.
In the longer term, the steady appreciation of the Singapore dollar is in line with the country’s economic fundamentals, Lim said. A stronger currency will help reduce the cost of imported goods and prevent wages and rentals from rising too rapidly, he said.
Singapore’s economic recovery is becoming broad-based and more entrenched, reflecting the global rebound, he said. Still, several downside risks remain, including the sovereign debt crisis in Europe and weak end-consumer demand as fiscal stimulus measures are withdrawn globally, he said.