MAS expected to keep 'gradual stance' on Sing$

Tech exports likely to improve by 2nd half; inflation seems contained


SINGAPORE'S recent anaemic export figures are unlikely to sway policymakers from a path of gradual and modest appreciation for the Singdollar, predicted economists.

The central bank is expected to keep its monetary policy stance unchanged at its semi-annual review this week.

While slowing exports may be helped by an easing Singdollar path, rising consumer prices and wages call for the opposite, analysts point out.

So the Monetary Authority of Singapore (MAS), which manages the Singdollar's exchange rate against a trade-weighted basket of currencies as its monetary policy tool, is widely expected to announce more of the same.

A stronger currency helps to curb imported inflation but makes Singapore-made goods pricier for overseas spenders.

Singapore's cooling economic growth and its weakest quarterly export performance in nearly five years may heighten hopes of 'an easier exchange rate stance', but this is not likely to happen, HSBC economist Robert Prior-Wandesforde wrote.

The MAS 'is likely to argue that the weakness in exports, which have actually contracted year-on-year in two of the last three months, will prove temporary', he argued.

DBS economist Irvin Seah agreed, noting that monetary policymakers target economic scenarios months down the road, and the technology slump hurting domestic exports is likely to be over by the second half anyway.

On the other hand, there is little reason for faster Singdollar appreciation either, said United Overseas Bank economist Jimmy Koh.

Despite higher housing costs, rising wages and the 2-percentage-point increase in the goods and services tax (GST) to 7 per cent, expected in July, 'inflation is still a manageable 2 per cent this year', Mr Koh said.

Predicting a 1.4 per cent inflation rate for this year, Mr Seah said: 'You would think that the higher consumer prices arising from the GST increase would invite further tightening. But this rise is a one-off.'

Also predicting that the status quo would hold, Citigroup economist Chua Hak Bin said: 'Inflation remains well-contained at below 1 per cent.

'Nevertheless, there are signs that inflation pressures are picking up because of a tighter labour market, record money growth and rising rents resulting from a buoyant residential property market.

'We think that a greater challenge for the MAS is to manage the pressures emerging from the strong surge in capital inflows and money growth.'