| |
| |
![]() |
| |
|
| |
|
| |
|
SINGAPORE: With inflation fears fading, the Monetary Authority of Singapore (MAS) is expected to turn its attentions to growth at its monetary policy meeting at the end of this week.
An economic slowdown sparked by financial turmoil in the United States has led to growth concerns for countries around the world.
Selena Ling, head, Treasury Research & Strategy, OCBC Bank, said: "If you look around globally, all the central banks are looking to be more supportive of growth. This morning, we had the Reserve Bank of Australia cutting an unexpected one percentage point to 6 per cent, citing deteriorating global financial markets.
"In global financial markets, we also have the US Fed pumping up as much as US$900 billion into the system to ensure that the credit crunch doesn't worsen. On top of that, they're also contemplating unsecured term lending."
As countries like Australia act to support growth, economists said Singapore will follow as well. The country's central bank is expected to move soon to allow a gradual but more persistent easing of monetary conditions for the economy.
Kit Wei Zheng, VP, Asia-Pac Economic and Market Analysis, Citicorp Investment Bank, said: "The Singapore economy is already in technical recession even before the recent intensification of financial stress.
"Now, given the recent escalation of financial crisis, I think any realistic assessment of growth outlook by MAS will take into account a decent probability of a more prolonged, severe recession - including the possibility of mass retrenchments. The sharp global slowdown we're likely to see will essentially moderate the inflation risk.
"At the very least, the current situation probably warrants a shift to a neutral policy stance. We think the MAS will flatten the slope of the policy band for the trade-weighted Singdollar from 3 per cent annual appreciation currently to a 0 per cent appreciation bias."
Ms Ling said: "If you look at recent price action, you'll find that the Singdollar NEER has actually retraced to the weaker side of the parity band. This means a potential for MAS to re-center the Sing NEER parity band lower.
"I think the key question is whether they're going to accompany this by flattening the slope in terms of pace of appreciation or if they're going to go to an outright neutral slope."
Banks expect the Singdollar to end the year around 1.50 to the dollar. This will make exports more competitive, but is unlikely to outweigh sagging demand from cooling global economies.
"Export demand looks horrible going forward. I think it's more a global story that the global economy is slowing down. Monetary policy easing will help at the fringe, but it won't turn the whole story around.
"What I do see as possible upside is that it will give some confidence to markets that MAS is forward-looking, reacting to market crisis, which is what I think the market is looking for," said Ms Ling.
Mr Kit said: "I think some of the downside, however, could be some impact on inflation further out. Generally, the exchange rate has a stronger impact on inflation than growth. And in that context, concerns over the medium-term inflation outlook may constrain the MAS from taking the more drastic option of a downward band re-centering."
Increases in electricity and fixed line phone charges are likely to prevent Singapore's inflation from falling as much as expected.
The MAS will hold its monetary policy meeting on Friday, October 10.
- CNA/so
|
