SINGAPORE: Singapore's central bank is expected to keep monetary policy on hold next week as it stays on guard against inflation while an expected contraction in third-quarter GDP is likely to be a temporary blip.
The Monetary Authority of Singapore will continue to let the local dollar appreciate at its current trajectory, 15 of 16 economists surveyed by Reuters predicted ahead of its half-yearly monetary policy statement due next Monday at 8 a.m. (0000 GMT).
On the same day, advance gross domestic product estimates are expected to show the economy shrank an annualised 3.6 percent in the third quarter from the second after seasonal adjustments, according to the median estimate from a poll of 10 economists, following an expansion of 15.5 percent in April-June.
The supercharged second-quarter performance stemmed from strong showings by the financial services sector, and wholesale and retail trade.
Singapore has struggled with higher-than-normal inflation in recent years, prompting the central bank to let the currency strengthen to keep price increases in check.
Despite expectations of a contraction in the third-quarter, the government expects economic growth this year to pick up to around 2.5 to 3.5 percent from last year's 1.3 percent on a recovery in Western economies and the financial sector.
"Growth has surprised positively relative to April expectations and, despite a likely slowdown in sequential growth from elevated activity levels, should still keep the output gap positive," said Citigroup economist Kit Wei Zheng.
Singapore manages monetary policy by letting its dollar - the world's 15th most actively traded currency - rise or fall against the currencies of its main trading partners.
In its last policy statement issued in April, MAS maintained its stance of allowing a "modest and gradual" appreciation of the Singapore dollar to cope with inflationary pressures, "with no change to the slope and width of the policy band, as well as the level at which it is centred."
INFLATION PICK-UP
Although Singapore lowered its 2013 inflation outlook to 2-3 percent in June from a forecast of 3-4 percent previously, the pace of price increases has crept up since reaching a three-year low of 1.5 percent in April.
Singapore's consumer price index rose 2 percent in August from a year earlier, the fourth straight monthly increase.
MAS's core inflation measure rose 1.8 percent from a year earlier, picking up from 1.6 percent in July. Core inflation excludes the cost of housing and cars, which are more influenced by government policy.
The expected third-quarter contraction in GDP would likely be led by a drop in production of pharmaceuticals, which tends to be volatile.
Compared with a year earlier, GDP probably grew 3.8 percent, unchanged from the second quarter's year-on-year expansion, the poll showed.
ING Groep's Tim Condon, the only economist to predict a slight easing in monetary policy, said MAS could signal that it favours a slower appreciation of the Singapore dollar by decreasing the slope of the trading band to pre-April 2012 levels.
MAS last tweaked its monetary policy stance in April 2012 when it kept its modest and gradual appreciation stance but increased the slope of its trading band, indicating that it would let the Singapore dollar rise at a faster pace.
At that time, inflation was running at around 4-5 percent.
"The last tightening took place in an environment when the economy was doing well and inflation was too high," he said. "The balance of risk for the economy has shifted from inflation to growth," Condon said.
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