Singapore Keeps Currency Gain as Inflation Outweighs Growth Sag

Singapore’s central bank said it will retain the existing pace of currency appreciation to combat lingering inflation, even after the economy unexpectedly contracted last quarter.

“This policy stance is assessed to be appropriate for containing inflationary pressures, anchoring inflation expectations, and facilitating the restructuring of the economy towards sustainable growth,” the Monetary Authority of Singapore said today in a statement following its semi-annual exchange-rate review. There will be no change to the slope and width of the currency trading band that the MAS uses as its main policy tool, the authority said. The level at which it is centered will also remain unchanged, the MAS said.

The decision was forecast by 21 of 22 financial companies surveyed by Bloomberg News, while one said the central bank would shift to a zero slope.

“Relatively loose financial conditions stemming from a low interest rate environment and a tight labor market remain strong underlying drivers of inflationary pressures,” Mark Tan, Singapore-based economist at Goldman Sachs Group Inc., wrote in an e-mailed response to questions before today’s announcement. “Medium-term inflation concerns remain the main underlying driver of the MAS policy stance.”

The Singapore dollar fell 0.2 percent to S$1.2388 versus its U.S. counterpart as of 8:04 a.m. local time. It has declined 1.4 percent this year.

Gross domestic product shrank an annualized 1.4 percent in the three months ended March 31 from the previous quarter, when it climbed 3.3 percent, the Trade Ministry said today. The median of 10 estimates in a Bloomberg News survey was for 1.7 percent expansion.

Inflation Quickening

A report last month showed prices climbed 4.9 percent in February from a year earlier, the fastest pace since June and more than double the 1.9 percent average in the past 20 years. Singapore’s inflation rate compares with a 2.1 percent pace for China and 2 percent for the U.S.

The MAS unexpectedly left policy unchanged at its previous decision in October. It uses the exchange rate rather than borrowing costs to conduct monetary policy, adjusting the pace of appreciation or depreciation against an undisclosed trade-weighted band of currencies by changing the slope, width and center of the band. A flatter slope allows slower appreciation or depreciation over time.

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