MAS keeps S$ on appreciating path, lowers inflation forecast

SINGAPORE'S central bank has kept its monetary policy unchanged, keeping the Singapore dollar on an appreciating path to guard against inflation.

As private-sector economists had expected, the Monetary Authority of Singapore (MAS) said in its twice-yearly monetary policy statement on Tuesday morning that it would "maintain its policy of a modest and gradual appreciation of the S$NEER policy band" with no change to the slope, width and midpoint of the band within which the trade-weighted Singapore dollar fluctuates.

"The Singapore economy should expand at a moderate pace in the quarters ahead. Wage inflation is likely to remain relatively firm, and businesses in food related and some services sectors could further pass on cost increases," the central bank said.

"Consequently, MAS core inflation (which strips out accommodation and private road transport costs) is projected to stay above its historical average over the next few quarters even as (headline) inflation remains subdued," MAS added.

Given the recent weakness in car prices, the central bank lowered its headline inflation forecast to 1.0-1.5 per cent in 2014, from 1.5-2.0 per cent earlier. Its projection for core inflation for this year was also narrowed to 2.0-2.5 per cent, compared to its previous estimate of 2-3 per cent.

In 2015, MAS expects headline inflation at 0.5-1.5 per cent reflecting "the impact of muted housing rentals," while core inflation is forecast to average 2-3 per cent.