In Surprise Move, Singapore Holds Fire on Easing

By Gaurav Raghuvanshi and Jake Maxwell Watts 

        SINGAPORE--The Monetary Authority of Singapore on Tuesday surprised markets by keeping its currency policy unchanged, saying that it expects the economy to grow at a moderate pace and that inflation is likely to remain subdued this year.
        The decision marks a pause in the rash of easing so far this year, as central banks from China to India have cut interest rates to boost growth. Last week, Australia also surprised markets by leaving its interest rate unchanged at 2.25%.
        Singapore's central bank cited a slightly improved global economic outlook and benign prices as the reasons for keeping its policy steady.
        Separately, the government reported the economy grew 2.1% on year in the first three months of this year, the same pace as the fourth quarter last year.
        It also reported growth of 1.1% in the first quarter of this year, on an adjusted and annualized basis, compared with 4.9% in the fourth quarter of last year.
        Weak exports and subdued inflation prompted many economists to expect the central bank would ease policy for the second time this year, after it set the local dollar on a slower pace of appreciation against a basket of currencies of Singapore's key trading partners in a surprise review of policy in January. Seven out of eight analysts in a Wall Street Journal poll predicted that the central bank would ease again.
        "I think the decision to leave the policy stance steady clearly indicates that the hurdle for further easing is high," said Khoon Goh, senior foreign exchange strategist at ANZ Bank in Singapore. The central bank seems cautious about inflationary pressure of Singapore's tight labor market, which would increase wages.
        The central bank said that it would maintain its policy of a modest and gradual appreciation of the Singapore dollar's nominal effective exchange rate. Singapore uses its currency as its policy tool to damp inflationary expectations and support growth, as the country's trade flows dwarf its domestic economy.
        The surprise decision to stand pat sent the local dollar higher. The U.S. dollar fell to S$1.3625 after the statement was released, from around S$1.3720 early Tuesday, implying a 0.7 gain in the Singapore dollar.
        Inflation will likely stay subdued this year because of lower oil prices and as local firms are reluctant to pass through higher costs to consumers, the MAS said. The central bank's core inflation measure, which excludes the costs of private road transport and accommodation, eased to 1.2% on year in January-February from 1.6% in the fourth quarter of last year.
        The central bank said inflation may dip further before rising toward the end of the year and into 2016 as global oil prices pick up and the effects of a reduction in local health-care costs fade. The local labor market is expected to remain tight amid low unemployment, it said.
        "The sustained, albeit uneven recovery in the global economy should provide a mild uplift to the external-oriented sectors in Singapore," the central bank said in its half-yearly monetary policy statement.
        It said the U.S. economy will continue to be the main driver of global growth, while eurozone and Japan are showing signs of a turnaround, supported by monetary easing and stronger exports. This quarter, an expansion in construction and services offset a fall in manufacturing, government data showed.
        The Monetary Authority of Singapore said that it expects the economy to grow at a moderate pace of between 2% and 4% in 2015, compared with a 2.9% growth in 2014. The central bank also kept unchanged its prediction of an average 0.5% deflation or 0.5% inflation of the consumer-price index in 2015.
        Write to Gaurav Raghuvanshi at gaurav.raghuvanshi@wsj.com and Jake Maxwell Watts at jake.watts@wsj.com
        (END) Dow Jones Newswires

        April 13, 2015 22:46 ET (02:46 GMT)

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