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INSTANT VIEW 3-Singapore stands pat on monetary policy, dodges recession

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* Q3 GDP -1.5 pct q/q vs median forecast of -1.0 pct * Q3 GDP +1.3 pct y/y vs median forecast of +1.2 pct * Singapore avoids recession with Q2 q/q revision * Reiterates full-year GDP outlook

SINGAPORE, Oct 12 (Reuters) - Singapore defied expectationsby sticking to its tight monetary policy stance on Friday,warning of persistent inflationary pressures as data showed aquarterly contraction in gross domestic product in theJuly-September period.

But trade-dependent Singapore avoided a technical recessionas second quarter GDP was revised to show a slight expansion.

The Monetary Authority of Singapore said it will maintainits policy of allowing a modest and gradual appreciation of theSingapore dollar with no change to the slope, midpoint and widthof the trading band.

The Ministry of Trade and Industry said in a separatestatement the economy contracted 1.5 percent in the thirdquarter from the second quarter on an annualised and seasonallyadjusted rate, slightly worse than the median forecast ofeconomists polled by Reuters.

For the full story, click on COMMENTARY SIM MOH SIONG, CURRENCY STRATEGIST AT BANK OF SINGAPORE

"It seems like the central bank is placing a lot moreemphasis on curbing upside inflation risk, judging from thepolicy statement."

"I think there is implicit expectation here that the growthoutlook may improve by later this year and beginning of earlynext year. So if that holds then, reading between the lines,inflation will still be the key concern."

"The implicit assumption in the policy statement seems to bethat the reflationary polices put in by the major central banksin the world should help stabilise global growth and thereforeprovide some support for Singapore's growth outlook goingforward."

"On the growth outlook in Singapore, definitely there aresome signs of stabilisation. The question remains on when we arelikely to see a more substantial rebound. We might be on theverge of benefiting from the reflationary policies that help tostabilise growth."

FRANCES CHEUNG, SENIOR STRATEGIST AT CREDIT AGRICOLE IN HONGKONG

"The MAS disappointed. The third-quarter GDP did come in asexpected but interestingly the second-quarter GDP was revisedupward, helping the economy avoid a technical recession."

"When other central banks in the region are on the dovishside, the MAS's decision is putting further downside risk to theSingaporean economy."

"USD/SGD gapped lower and front-end SGD rates are betteroffered in response. Given positions had been betting on areduction in the slope, market reaction would be amplified."

ANDY JI, ASIAN FX STRATEGIST AT COMMONWEALTH BANK OFAUSTRALIA IN SINGAPORE

"While non-consensus, it was a non-negligible risk that theMAS could keep its policy stance unchanged."

"First, the inflation narrative remains unchanged. Second,the slope of the SGDNEER could be flatter than the 3 percentaccording to a majority of analysts."

"In other words, the slope is already at is long-termaverage and a slight reduction after increasing the slope at thelast meeting also slightly could be seen as policy flip-flop. Atthe same time, a 50 basis point reduction would be insignificantin the whole band width of 4 percent."

WAI HO LEONG, ECONOMIST AT BARCLAYS IN SINGAPORE

"Clearly there is a very strong job market and a sense thatthe drop in GDP in the third quarter will be one-off and will bereversed very quickly in the fourth quarter."

"However this decision (to keep the policy unchanged) couldspark a rush of foreign capital into Singapore dollar assetsgiven the better-than-expected outcome."

"We could see more flows into Sing dollar assets in thecoming weeks and we could see more testing of the upper limit ofthe band."

SONG SENG WUN, ECONOMIST AT CIMB IN SINGAPORE

"I am a bit surprised that MAS chose to maintain given signsthat global growth momentum has lost steam and many othercentral banks have chosen to ease."

"I suppose the fact that we averted a technical recessionand the worry about the impact of the tight labour marketprobably kept them from easing."

"That's another thing to note, growth is slower but stilllikely to come in within the growth forecast, although at thelower end. Inflation risk is still a nagging concern."

MARKET REACTION

- The Singapore dollar jumped after the centralbank's surprise decision to stand pat on policy. It was tradingaround 1.2219 to the U.S. dollar compared with 1.2279 before theannouncement.

- For news on the Singapore economy, see

- To track Singapore economic data, click

(Reporting by Saeed Azhar, Anshuman Daga, Eveline Danubrata andJong Woo Cheon; Editing by John O'Callaghan)

((Kevin.Lim@thomsonreuters.com)(65)(6403 5663))

Keywords: SINGAPORE ECONOMY/GDP