* 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 expectations by sticking to its tight monetary policy stance on Friday, warning of persistent inflationary pressures as data showed a quarterly contraction in gross domestic product in the July-September period.
But trade-dependent Singapore avoided a technical recession as second quarter GDP was revised to show a slight expansion.
The Monetary Authority of Singapore said it will maintain its policy of allowing a modest and gradual appreciation of the Singapore dollar with no change to the slope, midpoint and width of the trading band.
The Ministry of Trade and Industry said in a separate statement the economy contracted 1.5 percent in the third quarter from the second quarter on an annualised and seasonally adjusted rate, slightly worse than the median forecast of economists polled by Reuters.
For the full story, click on COMMENTARY
FRANCES CHEUNG, SENIOR STRATEGIST AT CREDIT AGRICOLE IN HONG KONG
"The MAS disappointed. The third-quarter GDP did come in as expected but interestingly the second-quarter GDP was revised upward, helping the economy avoid a technical recession."
"When other central banks in the region are on the dovish side, the MAS's decision is putting further downside risk to the Singaporean economy."
"USD/SGD gapped lower and front-end SGD rates are better offered in response. Given positions had been betting on a reduction in the slope, market reaction would be amplified."
ANDY JI, ASIAN FX STRATEGIST AT COMMONWEALTH BANK OF AUSTRALIA IN SINGAPORE
"While non-consensus, it was a non-negligible risk that the MAS could keep its policy stance unchanged."
"First, the inflation narrative remains unchanged. Second, the slope of the SGDNEER could be flatter than the 3 percent according to a majority of analysts."
"In other words, the slope is already at is long-term average and a slight reduction after increasing the slope at the last meeting also slightly could be seen as policy flip-flop. At the same time, a 50 basis point reduction would be insignificant in the whole band width of 4 percent."
WAI HO LEONG, ECONOMIST AT BARCLAYS
"Clearly there is a very strong job market and a sense that the drop in GDP in the third quarter will be one-off and will be reversed very quickly in the fourth quarter."
"However this decision (to keep the policy unchanged) could spark a rush of foreign capital into Singapore dollar assets given the better-than-expected outcome."
"We could see more flows into Sing dollar assets in the coming weeks and we could see more testing of the upper limit of the band."
SONG SENG WUN, ECONOMIST AT CIMB
"I am a bit surprised that MAS chose to maintain given signs that global growth momentum has lost steam and many other central banks have chosen to ease."
"I suppose the fact that we averted a technical recession and the worry about the impact of the tight labour market probably kept them from easing."
"That's another thing to note, growth is slower but still likely to come in within the growth forecast, although at the lower end. Inflation risk is still a nagging concern."
- The Singapore dollar jumped after the central bank's surprise decision to stand pat on policy. Around 0830 GMT, the Singapore dollar was trading around 1.2213 to the U.S. dollar compared with 1.2279 before the announcement.
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(Reporting by Saeed Azhar, Anshuman Daga, Eveline Danubrata and Jong Woo Cheon; Editing by John O'Callaghan)
Keywords: SINGAPORE ECONOMY/GDP