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Source:
www.mas.gov.sg |
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MAS MONETARY POLICY STATEMENT |
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Chart 1 Nominal
Effective Exchange Rate (S$NEER) |
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In October last year, MAS maintained the
policy of a modest and gradual appreciation of the S$NEER policy band. |
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This policy stance, which has been in place
since April 2004, was assessed to be appropriate for containing any rise
in inflationary pressures amidst higher global inflation and domestic
costs. |
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Over the past six months, the S$NEER
appreciated from the lower half to the upper half of the policy band.
(Chart 1) |
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Downward pressures on the S$NEER in early Q4
last year amidst broad-based US$ strength were short-lived, as the
S$NEER soon strengthened in the subsequent months. |
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This reflected the strong investor interest
in Asian markets, on the back of optimistic economic prospects in the
region. The S$NEER was also supported by encouraging domestic economic
data and the favourable outlook for the economy. |
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The appreciation of the S$NEER, coupled with
the rise in domestic interest rates, has led to a significant tightening
in domestic liquidity conditions since late 2005. |
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Reflecting in part the catch-up to prior
increases in US interest rates, the three-month domestic interbank rate
rose from 2.38% at end-September 2005 to 3.44% as at end-March this
year, pulling up mortgage and deposit rates as well. This increase has
taken place against the backdrop of the strengthening economy. |
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Real domestic three-month interbank rates,
which turned positive in December 2004, have remained largely in line
with its historical average. |
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OUTLOOK FOR 2006 |
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The growth trajectory of the Singapore
economy has evolved largely according to our expectations. |
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The
Advance Estimates released by the
Ministry of Trade and Industry (MTI) showed that the Singapore economy
expanded by 9.1% in Q1 2006 compared to the same period last year. |
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On a quarter-on-quarter seasonally
adjusted annualised basis, GDP expanded by a modest 1.2% in Q1,
following the robust expansion of 12.5% in Q4 2005. |
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While there has been some retraction
in the momentum, the underlying pace of activity in the
manufacturing sector remains firm, with sustained growth in
electronics output and strength in transport engineering. |
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The trade and tourism-related services
industries also showed healthy rates of expansion, supported by
favourable external demand conditions, which are expected to be
maintained in the year ahead. |
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Indeed, the factors that underpinned
the growth of the Singapore economy last year remain intact and
will continue to support the expansion this year. |
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The global IT industry is expected to
grow at about the same rate as in 2005, providing support not only
to the domestic electronics industry, but also the entrepot trade
and the hub-related transport services industries. |
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Barring any unexpected shocks in the
external environment, the Singapore economy is forecast to expand
at between 4-6% this year. |
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At this pace of growth, the
unemployment rate is likely to average around its Q4 2005 level of
2.5%. |
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Overall wage growth should be
well-contained, although there could be stronger pressures in some
industries where the demand for labour is particularly robust.
With sustained growth in productivity, overall unit labour costs
should stay subdued. |
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The pass-through of high global oil
prices, directly into energy-related consumer items and indirectly
through increasing business operating costs, will continue to be
an important factor influencing CPI inflation. |
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For 2006 as a whole, headline CPI
inflation is projected to come in at 1-2%, before moderating
somewhat in 2007. |
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MONETARY POLICY |
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The slowdown in growth momentum in Q1
2006 is expected to be temporary, and should be viewed in the
context of the strong expansionary spurt in the preceding quarter. |
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Economic activity remains at a high
level, and the underlying growth supports for the Singapore
economy are intact. |
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Although CPI inflation will come in
higher this year, overall domestic inflationary pressures will be
contained under the current policy stance, with liquidity
conditions having tightened significantly since the last policy
review. |
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MAS will therefore maintain the
current policy of a modest and gradual appreciation of the S$NEER
policy band. There will be no re-centring of the policy band, nor
any change to its slope or width. |
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Source:
www.mas.gov.sg Media Release
11 Apr 2006 |
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Notice |
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FrontPage Edition: Wed 12 Apr 2006
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