IMF says Singapore's MAS must guard against deflation

[SINGAPORE] The Monetary Authority of Singapore should be ready to adjust its monetary policy further if deflation takes root in the city state, the International Monetary Fund said.

The Monetary Authority of Singapore took "appropriate" action last month when it unexpectedly eased policy by announcing it won't seek currency appreciation, the Washington- based IMF said in a statement on its website.

"The MAS should remain vigilant to signs of deflation and adjust its policy settings further if needed," the lender said.

Consumer prices in Singapore have declined every month since November 2014, the longest slump on record, partly due to lower oil prices and reflecting a weakening economy. Gross domestic product growth was flat on an annualised basis in the first quarter compared with the previous three months.

The IMF is forecasting growth of 1.8 per cent this year, improving to about 2.5 per cent in 2017. Tighter restrictions on foreign workers and an aging workforce is a constraint to growth, it said.

The biggest external risk for the export-reliant economy is a sharper-than-expected global slowdown, according to the IMF. That can be magnified "by domestic vulnerabilities from elevated levels of leverage," it said.

BLOOMBERG