MAS keeps Singdollar policy unchanged even as economic growth surges to 3-year high

Singapore economy grew by 4.6 per cent in the third quarter compared with the same period a year earlier.
Singapore economy grew by 4.6 per cent in the third quarter compared with the same period a year earlier.PHOTO: REUTERS

SINGAPORE - The Monetary Authority of Singapore (MAS) is keeping its Singdollar policy unchanged, it said on Friday (Oct 13).

This came as the Singapore economy grew by 4.6 per cent in the third quarter compared with the same period a year earlier, according to data from the Ministry of Trade and Industry.

This was higher than the 2.9 per cent growth in the preceding three months and the fastest pace in more than three years.

The MAS uses the exchange rate as its main monetary policy tool to strike a balance between inflation from overseas and economic growth. The rate is allowed to float within a policy band that can be adjusted when monetary policy is reviewed.

A stronger currency - which corresponds to tighter monetary policy - counters inflation by making imports cheaper in Singdollar terms, while a weaker Singdollar helps to lift growth by making exports cheaper abroad.

The exchange rate is managed against a basket of currencies of Singapore's major trading partners.

The Singdollar policy band is now on a path of zero appreciation against the currencies of key trading partners - a "neutral" policy stance put in place in April last year amid slow growth and low inflation.

The central bank struck a more upbeat note in its latest policy statement on Friday, despite announcing that it is keeping its policy stance unchanged.

The economy has performed "slightly better than expected" since its last policy review in April, the MAS noted. This growth has largely been driven by a surging electronics manufacturing sector, which has gotten a boost from strong global demand for semiconductors and related gear.

Trade-related services and several domestically oriented sectors such as retail are also showing signs of picking up, though some segments such as marine and offshore engineering remain weak on the back of poor sentiment in the oil and gas sector.

 
 

For the rest of the year and into 2018, Singapore's economic growth is expected to remain firm but could moderate slightly as the global economic recovery enters a more mature phase, the MAS noted.

Growth should also become more even across sectors in the coming quarters. The boost from electronics is likely to diminish but stay positive, while the pace of contraction in other sectors is expected to level off.

Growth rates across a broad range of sectors should be stable or improve slightly in the coming year, said the MAS, adding that economic expansion this year and next will be driven by productivity gains.

Core inflation, another key factor that goes into monetary policy decisions, will also inch up next year. It is expected to come in at around 1.5 per cent this year and average 1 to 2 per cent next year.