Singapore’s fight against inflation still on amid uncertain growth outlook -central bank

SINGAPORE  – Singapore’s central bank warned on Wednesday of weak near-term growth for one of Asia’s top financial hubs and said its fight against rising prices was not yet over, even as it lowered its 2023 headline inflation forecast.

In an annual review by the Monetary Authority of Singapore (MAS), Managing Director Ravi Menon said Singapore’s inflation would ease significantly thanks to a tight monetary policy stance, but the central bank would “not switch from inflation-fighting mode to growth-supporting mode”.

Headline inflation slowed to 4.7 percent in May compared to the 5.4 percent recorded in the first quarter.

MAS now forecasts 2023 headline inflation at 4.5 percent to 5.5 percent, lower than the 5.5 percent to 6.5 percent seen previously, Menon told reporters.

Core inflation is seen at 2.5 percent to 3 percent by the end of the year, versus an earlier 2.5 percent forecast because of rising travel-related costs, he added.

MAS is ready to adjust monetary policy, “especially if inflation momentum were to re-accelerate,” Menon said. “We are closely monitoring the evolving growth-inflation dynamics and remain vigilant to risks on either side.”

The central bank left its monetary policy settings unchanged in April for the first time in two years as Singapore’s economy contracted in the first quarter this year, raising fears of a recession.

Singapore unexpectedly leaves monetary policy unchanged as risks grow

That move surprised economists, who had expected a sixth straight round of tightening in a streak that had included two off-cycle moves in 2022. MAS’ next scheduled policy review is in October.

Instead of interest rates, the MAS manages policy by letting the local dollar rise or fall against the currencies of its main trading partners.

Gross domestic product would be at the mid-point of the 0.5 percent to 2.5 percent range expected this year, down from 3.6 percent in 2022, because Singapore remained exposed to a global slowdown and geopolitical uncertainties, MAS Chairman Tharman Shanmugaratnam said in a report accompanying the annual review.

Singapore’s GDP grew 0.4% y/y, beating advanced estimates

Maybank economist Chua Hak Bin said the central bank must not lose focus on combating inflation.

“The government has plenty of fiscal options to support growth… and levers to cushion the downturn and may come up with a fiscal support package if a recession materializes,” he said.

Singapore was also well positioned for a second hike in its goods and services tax in 2024 if inflation falls to 2.5 percent to 3 percent in the final quarter of this year, Menon said. The sales tax will increase to 9 percent next January, after increasing from 7 percent to the current 8 percent at the beginning of 2023.

The central bank’s monetary policy tightening streak was also reflected in a net loss for the MAS of S$30.8 billion ($22.81 billion) in the fiscal year 2022-2023, he said.

($1 = 1.3500 Singapore dollars)

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