RTTNews - The International Monetary Fund said Singapore's current monetary policy settings were broadly appropriate, supporting domestic demand without undermining exchange rate stability.

According to the lender, monetary policy should 'stay the course', until a recovery in the economy was clearly established. However, further on the path to recovery, the IMF said in the Article IV Consultation report that a tightening stance would be warranted to safeguard price stability, through targeting a trend appreciation of the nominal effective exchange rate.

The Executive Board noted that the flexible-exchange rate regime served well for Singapore and the exchange-rate centered monetary policy framework has been an important source of stability in times of turbulence. The board noted that the Singapore dollar in real effective terms appeared to be somewhat weaker than its medium term equilibrium level, but with the emergence of a global recovery, the real effective exchange rate is likely to strengthen.

Singapore's policy measures to tackle the crisis have been forceful, with the aim of reducing external shocks to ensure the economy was well positioned to recover when the global economy recovers, the IMF noted.

Moreover, the Resilience Package given out by the Singapore government in its 2009 budget would go a long way in mitigating the impact of the recession on households and businesses, while also promoting the region's long term growth potential, the report said.

In the second quarter, the Singapore economy grew a seasonally adjusted 20.7% on a quarterly basis, reversing the 12.2% contraction in the first quarter.

Over the medium term, the IMF said fiscal policy would play an important role, reflecting higher public investment in physical and social infrastructure, along with flexible labor and product markets, enabling the economy to seize new economic opportunities. Further, considerations should also be given for strengthening the role of automatic stabilizers, it said.

The financial sector showed remarkable resilience, and this would allow the city state to withstand an even deeper and prolonged downturn, the lender noted. It also welcomed the decision of the Monetary Authority of Singapore (MAS), the Hong Kong Monetary Authority, and Bank Negara Malaysia to coordinate the unwinding of deposit guarantees in their respective jurisdictions.

Meanwhile, the IMF in its report also pointed out that the Singapore economy could contract by 7.7% this year, but recover with a growth of 2.5% next year. It expects the consumer price inflation to stand at 0.3% in 2009, but rise to 1.3% in 2010. At the same time, the lender projects the jobless rate to be 3.9% by the year-end, but to decrease to 3.6% next year.

For comments and feedback: contact editorial@rttnews.com