Thursday, July 16, 2009

Slow, Uneven Growth

Source : The Straits Times, July 16, 2009

SINGAPORE'S economy is likely to see slow and uneven growth, rather than sharp and decisive recovery, said the central bank on Thursday.

The Ministry of Trade and Industry on Tuesday revised the official growth forecast for this year to between - 4 and - 6 per cent. -- ST PHOTO: JOSEPH NAIR

'Given that there remain stresses in the global financial system and job markets in the major economies continue to weaken, the domestic economy is likely to witness slow and uneven growth, rather than sharp and decisive recovery,' Monetary Authority of Singapore Managing Director Heng Swee Keat said at a press conference on Thursday when releasing the MAS annual report.

The Ministry of Trade and Industry on Tuesday revised the official growth forecast for this year to between - 4 and - 6 per cent.

Mr Heng said Singapore's economic recovery must be seen in the context of the sharp retraction in economic activity between the fourth quarter of last year and the first three months of this year.

He noted that businesses have started to rebuild inventories 'to levels that are more sustainable and consistent with underlying demand, which has stabilised somewhat amidst easing financial conditions.

In the domestic financial sector, several areas of activities posted gains in the second quarter.

'Improved sentiment has buoyed stock market turnover, while the latest figures for May showed that domestic non-bank loans remained firm,' he added.

Mr Heng said in tandem with the weak demand and easing domestic costs, consumer price increases are expected to be muted.

For this year, CPI inflation is now expected to come in between -0.5 per cent and 0.5 per cent, taking into account recent developments in global commodity prices, he said.

On the monetary policy, Mr Heng said: 'Notwithstanding the sharp rebound in the economy in the second quarter, growth remains below trend and inflationary pressures continue to be muted.

Current policy stance remains appropriate

'WE ASSESS that the current policy stance remains appropriate to support the economic recovery and ensure medium-term price stability, which in turn underpins confidence in the Singapore dollar.'

The central bank in April said it would adjust the trading range for the Singapore dollar, a move economists say effectively devalued the currency.

The next monetary policy review will be in October.

Going forward, Mr Heng said the MAS will focus on:

- shaping and adopting new international regulatory standards

- strengthening the corporate governance of financial institutions

-enhancing the Standing Facility and strengthening the Singapore Government Securities auction system

- bolstering investors' confidence in our financial system.

Local banks are also conducting more detailed stress tests internally and the results will be used in their capital planning, he said.

The monetary authority plans to implement changes on its regulatory framework over the next two years as global standards are raised, he said.

But the central bank will maintain a 'balanced approach' and will avoid 'over-swinging the regulatory pendulum,' said Mr Heng.

MAS also plans to review its deposit insurance regulation to provide 'adequate protection to depositors,' and will consider raising the coverage limit for deposit insurance.

It also plans to 'enhance' a standing facility for financial institutions and accept AAA-rated Singapore-dollar debt as collateral for the facility, which allows the institutions to borrow directly from the central bank.

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