Martin Lee @ Sg
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MAS Monetary Policy Statement Oct 09

MAS has just released their monetary policy statement for the second half of this year. Their forecast for the future:

  • The easing of global financial conditions and inventory restocking had benefited the domestic financial market and manufacturing activity, leading to a strong rebound in the 2nd quarter and further improvement in 3rd quarter. Singapore’s GDP growth forecast for 2009 has been revised upwards to between -2.5% and -2%, from -6% to -4%.
  • However, the economy is not expected to sustain the strong pace of expansion seen in Q2-Q3 2009.  While prospects for the external economies have improved, final demand in Singapore’s key export markets, including for IT products, has yet to recover decisively.
  • Significant challenges remain in the transition to private sector-driven growth as governments prepare to exit from their expansionary policies.  The Singapore economy is likely to settle at a more gradual pace of expansion.  GDP growth in 2010 is expected to be slower than in previous post-recession periods.
  • The domestic CPI inflation rate averaged -0.5% year-on-year over the period from April to August 2009.   For the rest of 2009 and into 2010, CPI inflation will continue to be driven by external factors, especially higher oil and food commodity prices in world markets.
  • In comparison, domestic sources of inflationary pressures will be restrained by subdued factor costs, reflecting the temporary slack in the labour market and upcoming supply of commercial space.  Nevertheless, these costs are expected to pick up in the latter half of next year as the recovery progresses.  CPI inflation is likely to be around 0% in 2009, before rising to 1-2% in 2010.

MAS will maintain the current policy stance of a zero percent appreciation of the S$NEER policy path.  There will be no change to the width of the policy band and the level at which it is centred.

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