The Monetary Authority of Singapore Friday tightened monetary policy in an attempt to alleviate core inflationary pressures and thereby to enhance growth.
Inflation stood at 4.6 percent in February, down from an average of 5.2 percent in 2011 but well above the 2 percent average in the last decade. It is anticipated that inflation will ease during the year, particularly if oil and commodity prices drop, as expected.
However, the growth outlook continues to be a concern. Global market sentiment took a fresh turn for the worse this week owing to a string of disappointing data and growing awareness that the eurozone crisis is far from solved. The Monetary Authority of Singapore (MAS) recognized the dangers in its policy statement.
The outlook for the global economy remains subdued, but the most significant risks have been contained. In the US, business sentiments have improved, and the incipient recovery of the labor market is supporting private consumption. Although the eurozone is still likely to slip into a recession in 2012, tail risks have receded following the ECBs longer-term refinancing operations (LTRO) programme, the MAS said in a statement.
The global economic growth is expected to be sluggish this year. As such, Singapore's export-driven economy will struggle to sustain its recent momentum. Against these developments, the Singapore economy will experience modest growth of 1-3 percent in 2012, the MAS said.
Looking ahead, external inflationary pressures are likely to be sustained, largely due to higher oil prices. Domestically, the labor market remains tight, it said.
Though core inflationary pressures have persisted, the MAS expects that these will ease in the latter half of the year. The MAS is revising the forecast for the MAS Core Inflation from 1.5-2 percent to 2.5-3 percent for 2012.
Inflation might be tamed by October when the MAS is scheduled to meet next, says Capital Economics. So it is expected that the MAS will loosen policy to counteract weakness in external demand.