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July 25, 2008

Singapore: Central bank raises inflation forecast to 6-7%
Singapore's central bank has revised up its inflation forecast for 2008 for the third time. It now expects inflation to come in at between 6 and 7 percent from its initial estimate of 5 to 6 percent, reported Channel News Asia.

The Monetary Authority of Singapore (MAS) said this is due to the impact of external developments like higher oil and food prices on Singapore's open and import-dependent economy.

The central bank, however, is maintaining its current monetary policy stance for a slow and gradual appreciation of the Singdollar.

MAS believes that inflation has peaked this year after rising 7.5 percent for May and June. For the first half of the year, consumer inflation averaged 7.1 percent.

Inflation is expected to moderate because the one-off impact of the GST hike last year will stop affecting headline inflation in July.

MAS also expects global commodity price increases to be milder. Domestic cost pressures are likely to ease as the economy slows and asset markets consolidate.

Recent employment surveys have also shown that labour market pressures could be easing.

Between April 2004 and June 2008, the Singapore dollar appreciated 23.4 percent against the greenback – a policy move that the MAS said has had a restraining effect on consumer inflation.

It said its monetary policy tightening will continue to restrain cost and price pressures going forward.

For example, while oil prices have increased by more than 70 percent from a year ago, domestic electricity tariffs and petrol prices rose only by around 30 percent.

Despite the full-year inflation being revised upwards, the central bank is keeping its forecast that the Singapore economy will grow between 4 and 6 percent this year.

The economy is likely to be supported by the construction, marine and offshore engineering and financial intermediation services sectors.

Last year, Singapore's economy grew 7.7 percent.

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