TEXT-Singapore October monetary policy statement


SINGAPORE, Oct 12 (Reuters) - Following is the text of theMonetary Authority of Singapore's October monetary policystatement.

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1. In April 2012, MAS increased the slope of the S$NEERpolicy band slightly. A narrower policy band was restored, withno change to the level at which the band was centred. Thispolicy stance was aimed at anchoring inflation expectations,ensuring medium-term price stability and keeping growth on asustainable path.

2. The S$NEER has appreciated towards the upper bound of thepolicy band over the last six months, reflecting positive risksentiment arising from policy responses in the US and Europe.Nonetheless, periodic surges in global financial market stressexerted bouts of downward pressure on the S$NEER. With lowinterest rates prevailing worldwide, the domestic three-monthinterbank rate has remained at 0.38% since December 2011.


3. The Singapore economy has weakened over the last twoquarters, alongside some softening in global economic activity.According to the Advance Estimates released by the Ministry ofTrade and Industry today, Singapore's GDP declined by 1.5% on aquarter-on-quarter seasonally adjusted annualised basis in Q32012, following marginal growth of 0.2% in the revised Q2 data.The external-oriented sectors, including the manufacturing,wholesale and transport & storage industries, bore the brunt ofthe downturn. However, construction and financial servicesremained broadly resilient.

4. While there remains considerable uncertainty over theevolving fiscal situation in the US and Eurozone, recent centralbank policy initiatives worldwide have reduced the risk of asevere global recession. The major industrialised economies as awhole are projected to expand at a sub-par pace in 2013, givenongoing deleveraging in both the private and public sectors.This will nevertheless be supportive of moderate growth in Asia,where domestic incomes and demand are expected to hold up. Theglobal IT industry is also likely to register a mild recoverynext year.

5. Singapore's GDP growth in 2012 is expected to be in the1.5-2.5% forecast range. Although growth in 2013 is likely tocome in slightly below the economy's potential rate, the levelof output should remain above its underlying potential and theeconomy hence continue to be at full employment. Growth will besupported by domestic-oriented activities such as construction,and some pickup in tourism and financial services. Manufacturingand related industries are likely to regain some traction in thelatter part of 2013, barring further adverse developments in theexternal environment.

6. Imported price pressures have generally been muted inrecent quarters, in line with the weaker external environmentand the appreciating Singapore dollar. Nevertheless, domesticcosts continued to rise amid a tight labour market. Unit labourcosts increased due to weak productivity growth in the servicessectors. MAS Core Inflation, which excludes private roadtransport and accommodation costs, averaged 2.3% in July-August2012, compared to a high of 3.1% in Q1 this year. CPI-All Itemsinflation moderated from 5.3% in Q2 to 3.9% in July-August,reflecting the dissipation of base effects in accommodationcosts.

7. Looking ahead, imported inflation, while broadly benign,will be susceptible to temporary spikes in food prices due toweather-related disruptions. Domestic supply-side factors willbecome more binding. In particular, persistent tightness in thelabour market will support slightly stronger wage increases in2013, which will continue to be passed through to consumerprices. MAS Core Inflation is expected to average around 2.5% in2012 and 2-3% next year.

8. CPI-All Items inflation will remain elevated in Q4 2012and Q1 2013, reflecting significant contributions from imputedrentals on owner-occupied accommodation and car prices, beforemoderating gradually over the rest of 2013. For the full year,CPI-All Items inflation is likely to come in slightly above 4.5%in 2012, mainly because of higher COE premiums. It is expectedto ease gradually to 3.5-4.5% in 2013. Imputed rentals onowner-occupied accommodation and car prices will account forslightly over half of CPI-All Items inflation in both years.


9. The global economy is likely to experience an extendedperiod of slow growth. Against this backdrop, the Singaporeeconomy should continue to expand but at a modest pace in 2012and 2013. The labour market should remain tight.

10. The appreciating stance of exchange rate policy sinceApril 2010 has provided some restraint on the build-up ofinflationary pressures, which in part reflects supply-sideconstraints in the economy. MAS Core Inflation receded recentlybut will face upward pressure from higher food and servicescosts. CPI-All Items inflation will remain elevated for sometime.

11. MAS will therefore maintain the policy of a modest andgradual appreciation of the S$NEER policy band. There will be nochange to the slope and width of the policy band, as well as thelevel at which it is centred. This policy stance is assessed tobe appropriate in containing inflationary pressures and keepingthe economy on a path of restructuring towards sustainablegrowth. MAS will continue to be vigilant in assessing externaleconomic and financial developments, and their impact on theSingapore economy.

END OF STATEMENT(Reporting by Kevin Lim)

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