Singapore: Singapore, which had a record first-half expansion, said economic activity will probably remain at "high levels" for the rest of the year, adding pressure on business costs and spurring inflation.
Growth is supported by a broad range of industries that will remain "largely intact" in 2010, the Monetary Authority of Singapore said in its annual report yesterday. The central bank said it will issue as much as S$20 billion (Dh53 billion) in bills starting next year as a new instrument in money-market operations to help lenders manage liquidity.
Singapore's economy is in contention to be the world's fastest-expanding in 2010 as rising demand for goods and services prompted the government to raise growth forecasts three times this year and led the central bank to allow currency gains. The outlook is clouded by European governments' austerity programmes to cut budget deficits and cooling household spending in some of the world's largest economies.
Sustained activity
"For Singapore, the underlying support for growth for the rest of 2010 is expected to remain largely intact and economic activity is likely to be sustained at high levels," the central bank said in the report. "However, if the crisis in Europe worsens, financial contagion spreads and the functioning of the international credit markets becomes impaired, downside risks to global growth could intensify."
Singapore's central bank, also known as the MAS, has for three decades used the currency rather than a benchmark interest rate as its main tool for managing inflation. At its April monetary policy review, the central bank said it would shift the Singapore dollar to a stronger range to trade in and allow a gradual appreciation.
While inflation is forecast to pick up toward the latter part of the year, "at this stage, we assess that the current monetary policy stance of a modest and gradual appreciation" of the currency band remains appropriate, Managing Director Heng Swee Keat said. The central bank predicts inflation will probably average between 2.5 per cent and 3.5 per cent this year.
Vigilance needed
Singapore's inflation is likely to accelerate and policy makers should stay vigilant on the outlook for growth and prices, which may require the "further calibration" of monetary policy, the International Monetary Fund said July 23.
In its annual assessment of the country's economy, the IMF said the Singapore dollar appears "somewhat weaker" than its medium-term equilibrium level.
The currency rose as much as 1.2 per cent versus its US counterpart on April 14, the day of the last monetary policy review. It was little changed at S$1.3656 as of 2.28pm in Singapore yesterday.
The central bank has sufficient flexibility to cope with capital flows, and the Singapore dollar is trading "comfortably" within the policy band, deputy managing director Ong Chong Tee told reporters.
"Given the strong economic performance of Singapore and the Asian region, we expect international capital to enter Asia in search of investment opportunities," Standard Chartered analysts Edward Lee and Tai Hui wrote in a report.
