SINGAPORE: The Monetary Authority of Singapore (MAS) on Wednesday revised its 2012
consumer inflation forecast for Singapore to 4 per cent to 4.5 per cent from
3.5 per cent to 4.5 per cent.
This is because the central bank
expects housing rentals and COE premiums to remain high.
However, the MAS kept unchanged
its core inflation forecast of 2.5 per cent - 3.0 per cent for the year.
The MAS core inflation measure,
which excludes costs for accommodation and private road transport, moderated to
2.7 per cent in the April-to-June quarter.
"It (core inflation) is
likely to ease further and approach 2 per cent by the end of the year. This is
not far from the historical average of 1.7 per cent," MAS managing
director Ravi Menon said at a news conference.
Local food inflation should
remain relatively contained for the rest of the year, he added.
However, economists warn that
food prices could trend up.
"We do have El Nino, there
is potential risk of supply disruptions, we've already seen inflation of
certain food items from the US suffering from the drought including higher
wheat prices, higher corn prices," Song Seng Wun, regional economist from
CIMB, said.
Official figures on Monday showed
Singapore's Consumer Price Index (CPI) inflation rate rose to 5.3 per cent year-on-year
in June from 5.0 per cent the previous month. The CPI rose by 5.1 per cent in
the first half of the year, down from 5.5 per cent in the second half of 2011.
Mr Menon said bringing down
inflation remains one of the central bank's top priorities. To keep inflation
in check, MAS has tightened its monetary policy to allow the Singdollar to
appreciate.
"Our simulations show that
if this appreciation had not taken place, CPI-All Items inflation this year
would have been 6.5 to 7 per cent, rather than the 4 to 4.5 per cent we have
projected," he said.
The MAS said its current monetary
policy stance remains appropriate.
The next monetary review is due
in October.
UOB's senior economist, Alvin
Liew, said: "Against the inflation outlook, it is hard to see whether they
(MAS) can tilt the monetary policy towards an easing bias. Tightening is not on
the cards as well, as the growth outlook is on the weaker side for 2012."
On Singapore's economic outlook,
MAS retained its projection that the economy would grow between 1 per cent and
3 per cent this year.
But Mr Menon warned that
Singapore's economic growth could dip below 1 per cent for 2012 if several
downside risks take a turn for the worse.
These scenarios include a
recession in the US, significant escalation of the eurozone crisis and a
"hard landing" for China's economy.
Still, growth momentum is slowing
and the MAS expects average growth in the second half to be lower than the
first six months of the year.
Singapore's gross domestic
product grew an average of 4.2 per cent in the first half of 2012.
Mr Menon also said a deeper
recession and a credit crunch in the eurozone will affect trade and could cause
a credit squeeze in the financial system.
"But our financial system is
sound and we should be able to weather the storm," he said.
"We have been carrying out
periodic industry-wide stress tests. The tests suggest that major financial
institutions in Singapore would be able to withstand adverse financial and
economic shock."
Mr Menon was speaking at an event
to launch the central bank's annual report for the year ended March 31, 2012.
MAS made a net profit of S$2.77
billion in fiscal 2011/12, reversing from the loss of S$10.94 billion in the
previous financial year when the strong local dollar reduced the value of
reserves held in other currencies.
Mr Menon said MAS made foreign
investment gains of S$12.1 billion, but overall net profit came in at S$2.77
billion due to a strong exchange rate.
- CNA/cc/ir/wm
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