Singapore sticks to tight monetary policy as expected

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SINGAPORE (Oct 14): Singapore's central bank on Tuesday maintained its tight monetary policy stance of allowing a "modest and gradual" appreciation of the local dollar, as expected, even as it lowered its core inflation forecast for 2014.

"The Singapore economy should expand at a moderate pace in the quarters ahead. Wage inflation is likely to remain relatively firm, and businesses in food-related and some services sectors could further pass on cost increases," the Monetary Authority of Singapore said in its half-yearly statement.

"Consequently, MAS Core Inflation is projected to stay above its historical average over the next few quarters even as CPI-All Items inflation remains subdued," it added.

"MAS will therefore maintain its policy of a modest and gradual appreciation of the S$NEER policy band. There will be no change to the slope and width of the policy band, and the level at which it is centred," the central bank said, referring to the nominal effective exchange rate.

The MAS had been widely expected to maintain its tight policy of allowing a "modest and gradual" appreciation of the Singapore dollar and to keep all policy settings unchanged, after core inflation edged up this year on wage pressure in a tight labour market.

Singapore manages monetary policy by controlling the exchange rate, rather than borrowing costs, because trade dominates the economy. MAS lets its dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band.