World Economy

Singapore CB Policy Tightening in Six Years Comes With Trade Warning

Singapore’s economy expanded 4.3% in the first quarter from a year earlier.Singapore’s economy expanded 4.3% in the first quarter from a year earlier.

Singapore’s central bank tightened monetary policy for the first time in six years on Friday, saying the city-state’s economy is expected to continue growing steadily even as it acknowledged risks from a trade spat between the United States and China.

The Monetary Authority of Singapore said it would slightly increase the slope of the Singapore dollar’s policy band from 0% previously, while keeping the width and mid-point of the band unchanged, Reuters reported.

“The measured adjustment to the policy stance takes into account the uncertainty in macroeconomic outcomes presented by ongoing trade tensions,” the central bank said.

The policy tightening was in line with expectations and came as official data showed the city-state’s economy expanded 4.3% in the first quarter from a year earlier, matching market expectations and the fastest pace since a near four-year high of 5.5% in the third quarter of last year.

The return of global growth in recent years has prompted some Asian central banks to follow in the footsteps of the US Federal Reserve in gradually shifting away from extremely accommodative monetary settings. They include Malaysia’s central bank, which tightened policy in January and the Bank of Korea, which raised interest rates in November.

The MAS’s tightening takes it away from a “neutral” stance adopted two years ago, a setting it has resorted to in the past when the global economy deteriorated, including an 18-month period from October 2008 during the global financial crisis.

The Singapore dollar briefly rose by as much as 0.3% after the policy decision, but quickly pared its gains. It was last steady on the day at S$1.312 per US dollar.

With the US-China trade dispute posing risks to Singapore’s trade-reliant economy, some analysts were skeptical the MAS would tighten again at its next decision in October. One even said the latest tightening could be reversed going forward if risks materialize.

The central bank added that Singapore’s economy should continue on a steady expansion path in 2018, but also pointed to potential risks from a US-China trade rift. “An escalation of the US-China trade dispute remains possible, and if it occurs, will have significant consequences for global trade,” the MAS said.

The world’s two largest economies have threatened each other with tens of billions of dollars’ worth of tariffs in recent weeks, spurring worries of a full-scale trade war that could damage global growth and roil markets. Although the MAS did not give a specific figure, analysts said the Singapore dollar’s policy band was probably increased to a modest annual appreciation rate of 0.5%.

The MAS said Singapore’s 2018 GDP growth should come in slightly above the middle of the official forecast range of 1.5-3.5%. Core inflation should come in within the upper half of the MAS forecast range of 1-2% in 2018, while headline all-items inflation is projected to be in the upper half of the 0-1% range for the whole of 2018, the central bank added.

Add new comment

Read our comment policy before posting your viewpoints