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The IMF, issuing a regular country report, has said that Singapore's monetary policy should stay the course until a recovery is clearly established, barring a significant deterioration of the outlook for growth or inflation.
Describing Singapore's monetary policy settings as "broadly appropriate, supporting domestic demand without undermining exchange rate stability", the Executive Board of the International Monetary Fund (IMF) also observed that the Singapore dollar in real effective terms appears to be somewhat weaker than its medium-term equilibrium level.
However, the real effective exchange rate should strengthen in line with fundamentals, once a global recovery takes hold, the report went on to add.
The IMF report, known as an Article IV Consultation, was made based on a visit in May by an IMF team which collected data and held discussions with officials, including Finance Minister Tharman Shanmugaratnam and Managing Director of the Monetary Authority of Singapore, Heng Swee Keat.
While welcoming Singapore's fiscal policy responses, such as the Resilience Package in Budget 2009, the IMF emphasized that over the medium term, fiscal policy will need to play a part in preparing the economy for shifts in the pattern of global demand.
"Higher public investment in physical and social infrastructure, along with flexible labour and product markets, would create an enabling environment in which Singapore could seize new economic opportunities. Consideration could be given also to strengthening the role of automatic stabilizers," the report went on to add.
The IMF also said that although Singapore's financial sector has shown remarkable resilience and should be able to withstand an even deeper and more prolonged global downturn, more should be done as asset quality is likely to deteriorate.
It also suggsted better contingency planning and stronger cooperation abroad, such as the move by the Monetary Authority of Singapore (MAS), Hong Kong Monetary Authority, and Bank Negara Malaysia to coordinate the unwinding of deposit guarantees in their respective jurisdictions.
- CNA/sf
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