Singapore tightens monetary policy

Asian economies show signs of overheating

GMT 15:34 2011 Thursday ,14 April

Arab Today, arab today Asian economies show signs of overheating

Singapore is the latest Asian economy to tighten monetary policy .
Singapore - AFP

Singapore is the latest Asian economy to tighten monetary policy . Singapore on Thursday announced a tightening of monetary policy in a bid to keep a lid on inflation as data showed the economy grew an annual 8.5 percent in the first quarter. The Monetary Authority of Singapore (MAS), the central bank, said in a statement it would "re-centre the exchange rate policy band upwards" with economic growth seen staying solid in the coming months.
"This policy will ensure price stability in the medium term while keeping growth on a sustainable path," the MAS said in its twice-yearly policy statement.
Singapore conducts monetary policy via the local dollar which is traded against a basket of currencies of its major trading partners within an undisclosed band.
Economists said the upward re-centering of the policy band known as the Nominal Effective Exchange Rate essentially meant an appreciation in the Singapore dollar.
A stronger local currency will mitigate the cost of imports as Singapore, a small but affluent city-state, buys virtually all of its food and other needs from abroad.
"It's a tightening of monetary policy with a one-off appreciation (of the Singapore dollar)," said Song Seng Wun, a regional economist with CIMB Research.
"It reflects the surprisingly strong growth of the economy."
In early Asian trade, the dollar was trading at Sg$1.2508, recovering from a record low of Sg$1.2453 after the MAS policy statement was issued.
The city-state is the latest Asian economy to tighten monetary policy to curb inflationary pressures.
China, India, Vietnam and the Philippines have recently raised interest rates as energy and food prices soared.
The International Monetary Fund on Monday warned a number of Asian economies were showing signs of overheating and that soaring food and energy prices were threatening to stoke higher inflation.
It said in its latest global economic forecasts that "many emerging market economies will need to tighten policies to lower the risk of a hard landing".
Singapore's trade ministry meanwhile released advance estimates on Thursday showing that gross domestic product (GDP) grew an annual 8.5 percent in the first quarter.
The growth rate was better than the average 5.7 percent expansion projected by 13 economists in a Dow Jones Newswires poll.
The ministry said first-quarter growth was driven by the key manufacturing sector's 13.9 percent surge as regional demand for electronics and precision engineering improved.
"The Singapore economy continued to grow at a healthy pace in the first quarter of 2011," the ministry said in a statement. "Growth was led by the manufacturing sector."
On a seasonally adjusted quarter-on-quarter annualised basis, the economy expanded 23.5 percent, the ministry said.
Singapore's economy, valued at Sg$285 billion ($227 billion) last year, expanded a record 14.5 percent in 2010.

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