Singdollar likely to keep rising to combat inflation
MAS expected to keep stance due to inflation risk, labour tightening
ECONOMISTS expect the Monetary Authority of Singapore (MAS) will hold steady on its Singdollar stance when it meets next month.
That policy is to allow the local currency a "modest and gradual" appreciation against a basket of currencies of the country's major trading partners such as Malaysia, the European Union and China.
The exchange rate is the Government's main tool to combat inflation - a stronger dollar means imports cost less in Singdollar terms. But a strong Singdollar can put a dampener on growth by making exports less competitive.
While economists do not expect a change from the MAS, they warn that inflation is poised to rise after a relatively flat period, due to escalating car prices and an ever-tightening labour market.
There are considerable cost pressures in the economy from the labour shortage, and inflation is likely to accelerate towards the end of the year and into next year. Producers are only waiting for the right moment to pass on the costs, for example, when growth conditions improve.
- Barclays economist Joey Chew