Singapore Central Bank Tightens Policy

(RTTNews) - Singapore central bank tightened its monetary policy on Tuesday as escalating Middle East conflict drove sharp increases in energy prices.

The Monetary Authority of Singapore decided to increase slightly the rate of appreciation of the S$NEER policy band. There will be no change to its width and the level at which it is centred.

The central bank had eased its policy twice last year. Rather than adjusting interest rates, the MAS uses the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool.

The central bank observed that the economic growth will slow over the course of this year, with the output gap expected to average around zero percent.

Due to the Middle East conflict, prices of imported goods and services are forecast to climb in the quarters ahead. Consequently, MAS core inflation will pick up and remain elevated over the next few quarters, the bank said.

The bank raised its core inflation and CPI inflation forecast to 1.5-2.5 percent from the previous range of 1.0-2.0 percent previously.

Earlier in the day, the Ministry of Trade and Industry reported that the city-state economy grew at a slower pace of 4.6 percent in the first quarter, a slowdown from 5.7 percent in the preceding period.

On a quarter-on-quarter basis, the economy contracted 0.3 percent, a reversal from the 1.3 percent expansion in the fourth quarter.

The MTI cautioned that the US-Israel-Iran conflict that began in end-February may weigh on economic activity in the coming quarters.

ING economist Deepali Bhargava said the MAS is likely to maintain a cautious, data dependent stance. She forecasts MAS to leave its policy settings unchanged at the next meeting in July while it evaluates the extent of second round effects amid elevated oil prices.