Thursday, August 14, 2008

Inflation Should Be Main Focus For S'pore: IMF

Source : The Business Times, August 14, 2008

WASHINGTON - Containing mounting inflation pressures should be a priority for Singapore's authorities as economic activity is slowed by a global downturn, the International Monetary Fund said on Wednesday.

IMF board directors appeared divided over whether Singapore should further tighten monetary policy given rising inflation

'Against this background, ensuring that inflation expectations remain well anchored is a policy priority,' the IMF said in an annual evaluation of Singapore's economy.

IMF board directors, however, appeared divided over whether Singapore should further tighten monetary policy given rising inflation or wait and allow recent interest rate tightening to first feed into the economy.

IMF staff said the Singapore dollar 'remains weaker than the level implied by long-term fundamentals.' 'Given the downside risks to growth, many (IMF) directors favoured maintaining the current policy mix in the short term, with the authorities remaining ready to modify the policy stance going forward if necessary,' IMF board directors said in a statement.

'A number of other directors favoured the staff's view that a further degree of rebalancing of the macroeconomic policy mix toward a somewhat tighter monetary stance and a looser fiscal policy would be desirable. ... Directors agreed that, over the medium term, a broader reorientation of the policy mix is desirable,' the IMF said.

Singapore's central bank has aggressively tightened monetary policy since October to tackle inflation caused by surging oil and food prices.

The IMF forecast Singapore's economy would slow to 4.5 per cent this year and next from 7.7 per cent in 2007 as exports have been affected by a global economic downturn.

The IMF said turmoil in global credit and financial markets has had a limited impact on Singapore's financial system.

Credit spreads have widened, equity volatility has risen, and banks have incurred trading-related losses, including on structured credit products. Yet none of these developments have had systemic implications so far, it added. -- REUTERS

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