By Wong Siew Ying | Posted:
25 July 2012 1250 hrs
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