The Monetary Authority of Singapore (MAS), the city-state's central bank, said Monday that it will maintain its policy of a modest and gradual appreciation of the Singapore dollar as it expects the country's economy to expand "at a moderate pace" this year.
A separate statement of the advance estimates of Singapore's first quarter (Q1) economy performance released on Monday by the Ministry of Trade and Industry (MTI) showed that the city-state's GDP expanded by 5.1 percent on year in Q1, slightly lower than the 5.5 percent growth in Q4 last year.
But on a quarter-on-quarter seasonally adjusted annualized basis, the economy grew by only 0.1 percent, largely moderating from the 6.1 percent expansion in the preceding quarter.
In particular sectors, the manufacturing sector grew by 4.5 percent on quarter, which was lower than growth of 10.4 percent in last Q4. The MAS said the eased growth in manufacturing and trade- related activities was mainly due to inclement weather in the United States which dampened demand for Singapore's exports.
The service producing industries grew by 4.7 percent on year in Q1, lower than the 5.9 percent growth in the previous quarter. The MTI said moderation in growth was largely due to slower expansion in the wholesale and retail trade and finance and insurance sectors.
The central bank attributed the slower expansion pace to " negative global market sentiments as the U.S. Federal Reserve commenced the tapering of its asset purchase program."
On the other hand, the domestic-oriented construction sector remained firm, with quarterly growth rate of 10.7 percent in Q1, which was much higher than the 1.4 percent expansion in last Q4.
The MAS said the outlook for the global economy has brightened by recoveries in the U.S. labour market and the Eurozone.
"Together with a mild turnaround in the global IT industry, these developments will buttress growth in Asia ex-Japan, even as domestic demand in the ASEAN economies softens and China's GDP growth slows amid its ongoing structural reforms," the central bank added.
So the MAS viewed that the trade-related sectors in Singapore could expand at a moderate pace, while its domestic-oriented sectors would stay resilient. The central bank expected the economy to grow by 2 percent to 4 percent this year.
But the central bank forecasted that the core inflation, which excludes private road transport and accommodation costs, will be " elevated as firms continue to pass on accumulated cost increases to consumer prices."
"Domestic cost pressures, particularly stemming from a tight labour market, are likely to remain the primary source of inflation," it said in a statement.
The MAS expects core inflation to rise by 2 percent to 3 percent this year, up from 1.7 percent last year.
However, the central bank cut its forecast for the headline inflation from 2 to 3 percent to 1.5 to 2.5 percent. It said car price, which was one of the main force for the city-state's CPI inflation, "should add negligibly to inflation."
Meanwhile, the large supply of newly-completed housing units will also make the accommodation cost remain stable.
As a result, there will be no change to the slope, level and width of the policy band, within which the MAS manages the trade- weighted Singapore dollar, relative to a basket of currencies of trade partners and competitors.
This policy stance, which has been in place since April 2012, was assessed to be appropriate, taking into account the balance of risks between external demand uncertainties and rising domestic inflationary pressures, the MAS added.