Singapore’s MAS Faces Price Stability Challenge, Lee Says

The Monetary Authority of Singapore, the city state’s central bank, faces the challenge of maintaining price stability amid a more volatile global environment, Prime Minister Lee Hsien Loong said.

“Because of the economic and political uncertainties in the EU and U.S., and the worries over global deleveraging and rebalancing, financial markets and capital flows will continue to be volatile, and asset price inflation will remain a risk,” Lee said in a speech in Singapore today. “Energy and commodities prices continue to fluctuate around elevated levels. MAS must address these issues to keep prices stable and maintain preconditions for economic growth.”

Singapore’s central bank, which uses the island’s dollar to manage prices, said last month it will slow gains in its currency, joining other Asian policy makers in trying to juggle inflation pressures with protecting growth amid a faltering global recovery. The city state has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut reliance on exports.

Safeguarding Reserves

Singapore’s reserves have climbed to more than $200 billion now from $1.4 billion in 1971, Lee said today.

“Safeguarding the real value of our official foreign reserves in a more challenging and risky investment climate” is an issue the central bank must contend with, Lee said. “In an environment of lower returns and higher risk, it is all the more important for MAS to preserve the real value of our official foreign reserves, to maintain confidence and deter speculation in the Singapore dollar.”

The central bank had tightened monetary conditions at each of its previous three semi-annual reviews before the October decision. The Monetary Authority of Singapore guides the local dollar against a basket of currencies within an undisclosed band. It adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

The monetary policy stance remains “appropriate,” Ong Chong Tee, a deputy managing director at the central bank, told reporters last week. Inflation is forecast by the monetary authority to average about 5 percent this year and 2.5 percent to 3.5 percent in 2012.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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