Latest MAS easing move 'appropriate': IMF

SINGAPORE'S central bank acted fittingly when it eased monetary policy last month, said the International Monetary Fund (IMF) on Tuesday.

"The April 14 adjustment by the Monetary Authority of Singapore (MAS) of the slope of its exchange rate band represents the latest of a series of moves to ease monetary policy that commenced in January 2015."

An IMF team which visited Singapore "views these moves as appropriate: growth is below two per cent, inflationary pressures are not present, labour market pressures are receding, and commodity prices, including for oil, are stabilizing globally", the IMF said in a press statement. The two-page statement follows the visit from April 28 to May 10 by a group led by IMF staffer Alex Mourmouras.

The Washington-based institution added that the MAS should remain vigilant against signs of deflation and adjust its policy settings further if needed. It noted, however, that inflation is on track to reach a stable medium-term level of under 2 per cent by the end of 2017.

On the growth front, the IMF said economic expansion is projected to slow to 1.8 per cent in 2016, as the full impact of last year's slowdown is felt, and private investment is held back by uncertainties.

In 2017, however, the IMF expects growth to improve to about 2.5 per cent. Headline inflation and core inflation are projected to remain subdued this year, before rising "modestly" in 2017 as energy and commodity prices gradually recover.

Still, it flagged various risks on the horizon.

Said the IMF report: "Risks to the outlook are tilted to the downside. A sharper-than-expected slowdown in global growth is the most important short-term external risk. This could manifest itself through a significant downshift in China and other large emerging economies as well as weak growth in key advanced economies.

"Tighter or more volatile global financial conditions could lead to sharp asset price declines, a rise in credit spreads and a surge in the US dollar. These external risks could be magnified by, and interact with, domestic vulnerabilities from elevated levels of leverage."

Even so, should these downside risks materialise, the IMF said the Singapore government "has the flexibility to react".

It noted that the authorities are prepared to implement fiscal stimulus through targeted measures - whether by providing more income transfers to poor families and seniors, or accelerating infrastructure spending. "(This) would reinforce existing measures to reduce income inequality and help cope with the ageing of Singapore's population," the report said.

This article was first published on May 11, 2016.
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