Singapore Tightens Monetary Policy As Economy Grows At 6.4 Percent Rate In 3rd Quarter

Source : AsiaOne News, Oct 10, 2007

Singapore said its economy grew higher-than-expected 6.4 percent annual pace in the third quarter and tightened its monetary policy a notch on Wednesday in response to rising inflationary pressure.

Manufacturing fueled growth in the June-September quarter, the trade ministry said.

Growth was slower pace than in the second quarter, when gross domestic product expanded at a 14.4 percent pace, but it beat analysts' projections for 5.6 percent annualized growth. Compared with a year earlier, the economy grew 9.4 percent.

The trade ministry said the economy is "well on track" to meet the government's 7-8 percent growth forecast in 2007.

The Monetary Authority of Singapore, meanwhile, made its first change in the central bank's stance in over three years. It said it would slightly increase the slope of its undisclosed trade-weighted currency band but it won't change the width or centering of the policy target.

"In our assessment, this policy stance will remain supportive of economic growth while capping inflationary pressures and ensuring price stability over the medium term," the central bank said in a statement.

The news prompted the Singapore dollar to jump to a 10-year high as investors speculated the authorities are now willing to let the currency rise at a faster pace to temper increases in consumer prices.

The U.S. dollar fell to S$1.4631 from S$1.4720 just before the announcement, before rebounding to just above S$1.4650 amid unconfirmed rumors that the MAS had entered the market to smooth the sharp movements.

Wednesday's change suggests that Singapore policy makers are serious about getting inflation under control, even at the expense of slower growth. The MAS's more hawkish stance led some analysts to predict the central bank might tighten policy again as soon as its next meeting in April.

The MAS said inflation will average between 2 percent-3 percent in 2008 after coming in at 1.5 percent-2 percent in 2007, warning also that prices for food, oil and other commodities are expected to pick up, while escalating property prices will also begin to feed into consumer inflation.

In a breakdown of growth in various sectors of the economy, the trade ministry said manufacturing expanded 12.3 percent in the third quarter from a year earlier after growing 8.3 percent in the second quarter.

The services sector grew 8.1 percent from a year earlier and the sizzling property market continued to support construction, which jumped 15.5 percent.