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July 25, 2007

MAS closely monitoring property prices
The Monetary Authority of Singapore (MAS) has said it is expecting overall inflation to remain tame this year, but it is nonetheless concerned about the impact of rising property prices, Channel News Asia reported.

Giving its annual review on July 24, the central bank said it was closely monitoring rising property prices, after inflation hit a one-year high in June.

MAS said it would keep to its policy of allowing a modest and gradual appreciation of the Singapore dollar.

It added that it was keeping to its full year economic growth forecast of 5-7% for 2007.

That's more conservative than the 8% expansion now forecast by most private sector economists, after better-than-expected numbers for the first half.

The Singapore economy grew 7.3% in the first half, powered by ongoing expansion in the transport engineering, biomedical manufacturing and services sectors.

"We could repeat the 7.9% growth that we registered in 2006, based on the healthy data reports for the first two quarters of the year. The construction, services and other manufacturing sectors were holding up. In the second half, the tech sector should be less of a drag," said economist David Cohen at Action Economics.

In its annual review, the MAS reported positive growth in the financial services sector.

The total market capitalisation of equities listed in Singapore rose 69% from 2005 to reach S$720 billion.

MAS also noted that Singapore is now the largest REIT market in Asia ex-Japan, with 16 listed REITS and a market cap of over S$27 billion.

But inflation continues to be a key concern for MAS. It noted that business costs like wages and rentals have risen rapidly recently.

CPI is expected to pick up in the second half, with the GST hike in July and some price increases in food and transport.

The central bank expects CPI for the full year to come in at the upper end of its forecast range of 0.5-1.5%. It foresees inflation creeping up by 1-2% next year.

It is also keeping a close eye on rising property prices.

Heng Swee Keat, MD of MAS, said: "Impact of the rise in property prices and CPI - the first round effect is small. We'll watch the second round, to see if high prices will pass through to inflation as rental costs get passed on into prices of goods and services.

"On the financial stability front, the banking sector's exposure to property and construction sectors, as well as housing loans, is significant."

The central bank is maintaining its policy of allowing a modest and gradual appreciation of the Singapore dollar. The Singapore dollar is now hovering at 10-year highs against the greenback. CNA

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