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Inflation?
What inflation?
Singapore
Democrats
24
Jan 08
With
the economy taking a turn for the worse, Singaporeans are worried
about how the future is going to affect them. And while remains
the key factor that plagues the people, Mr Lee Hsien Loong, with
the help of his faithful media, pretends that it doesn't exist.
Read the Channel News Asia report and compare this to the two
reports that follow.
PM
Lee confident about Singapore’s economy
Channel
News Asia
24 Jan 08
Singapore’s Prime Minister
Lee Hsien Loong said it is likely that the United States will go
into a recession, but he is confident Singapore and Asia can
weather the storm.
He made the comment at a breakfast
meeting with 40 businessmen from the French Business
Confederation as he wrapped up his three-day official visit to
Paris.
The financial markets in the West have been hit by
the US sub-prime problems, and that in turn has affected Asia,
including Singapore.
Although a few Asian banks have some
exposure to bad loans in the US, Mr Lee said most had only
limited direct exposure.
"This is positive for Asia
because if the Asian banks have also been deeply engaged, then we
would have the problem, not only imported to us, but on our
door-step. But fortunately, it does not appear to have happened,"
he said.
Giving his assessment, Mr Lee said the economies
of China and India will continue to grow despite what happens in
the US, and this will help to give a boost to the Asian
region.
For Singapore, an open economy, Mr Lee said it
will feel the impact of what’s happening in the US, but
there are several positive trends to help the country ride
through the storm, such as having new investments and major
construction projects that are currently underway.
On how
Singapore’s growth would be affected, he noted the
country’s economy grew 7.5 per cent last year, and
Singapore is maintaining its official forecast of 4.5 to 6.5 per
cent growth for now.
Mr Lee said, "We’ll watch
the situation closely and will update the forecast if necessary.
We should not have a knee jerk reaction and lose our bearings in
the middle of dramatic market volatility. We’ve had four
years of strong and above-strength growth in Singapore."
He
also said Singapore and Asian countries can weather this
financial storm, unlike the 1997 Asian financial crisis. "We
got through that. That was all around us, right in Asia, we were
at ground zero. And this is something which is broader. But in
Asia, I think we are stronger and better prepared and we will
weather it."
Mr Lee reassured French businessmen that
despite current financial volatility, Asia is a growing market
with ample opportunities.
Singapore's dual
threat: high inflation, downturn
John Jannarone
Wall
Street Journal
24 Jan
08
http://online.wsj.com/article/SB120111735387410667.html?mod=googlenews_wsj
Singapore's
inflation hit a 25-year high in December, creating fresh pressure
to tighten policy just as the island braces for an economic
downturn.
The consumer-price surge, led by both import
costs and a robust property market, is expected to persist
through this year, but the Monetary Authority of Singapore may
find its hands tied if the U.S. slips into recession.
The
consumer-price index, a measure of costs for noncore goods and
services, rose 4.4% from a year earlier after rising 4.2% in
November, the Department of Statistics said yesterday. The rise
was the fastest since April 1982 and higher than the 4.3%
increase forecast by economists polled by Dow Jones
Newswires.
Costs of food and energy continue to fuel
inflation across Asia, but economists say central banks must also
weigh the likelihood of a slowdown in global demand.
"Inflation
through the region is going up, but it's not clear when the U.S.
economy will bounce back," said Prakriti Sofat, an economist
at HSBC in Singapore. "Central banks can't ignore either
factor."
The government has forecast economic growth
of between 4.5% and 6.5% in 2008 - less than the 7.5% clip posted
in 2007 - but analysts say that target won't hold if the U.S.
economy falters.
Tuesday's surprise move by the U.S.
Federal Reserve to cut the federal funds rate by 0.75 percentage
point could further complicate matters for Singapore as the
island's low interest rates fuel rising asset prices. The
Monetary Authority of Singapore uses exchange-rate targeting to
control prices because import costs are a key driver of
inflation, and consequently gives up control of interest
rates.
The yield on the two-year Singapore government bond
dropped more than 0.1 percentage point in trading
yesterday.
"Singapore needs to deal with the effects
of lower interest rates that result from the Fed's move,"
said Joseph Tan, senior strategist at Fortis Bank in
Singapore.
He said inflation in Singapore has averaged
0.9% over the last 10 years, but the central bank predicts
consumer prices will rise between 3.5% and 4.5% this
year.
Transportation costs were a leading driver of
overall inflation in December, increasing 6.4% from a year
earlier due to more expensive gasoline and a rise in taxi fares.
Mr. Tan said Singapore might follow the lead of China, which
recently instituted price controls to stem a surge in commodity
costs.
"It goes against free-market theory, but
Singapore could do what China's doing," he said. "The
government could step in to keep taxi fares from rising any
further."
Month-to-month, the CPI gained 0.5% in
seasonally adjusted terms, surpassing a forecast for a 0.3% rise.
For the year, the CPI gained 2.1% in 2007 after rising 1% in
2006.
High
inflation in time of weak growth poses challenge to Singapore MAS
Pearl Bantillo
Thomson Financial
24 Jan
08
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-22450418.htm
The
Monetary Authority of Singapore (MAS) may have to make a tough
call in setting the city-state's monetary policy as it faces a
choice between curbing soaring inflation and supporting economic
growth against the strong downward pull of the US economy this
year, economists said Wednesday.
Economists are expecting
the Singapore economy to moderate its pace of expansion to about
5-6 percent this year from 7.5 percent last year, while inflation
will average about 5 percent, more than double the 2.1 percent in
2007.
CPI data released earlier showed consumer prices at
a 25-year high in December at 4.4 percent, with a strong chance
of hitting 6 percent in the first quarter due to rising food and
petroleum costs. Housing costs are also expected to boost
inflation due to the adjustment in the annual values of Housing
Development Board flats, as well as a further electricity tariff
charge, economists said.
The MAS reins in inflation by
managing the movement of the Singapore dollar nominal effective
exchange rate against a basket of trade-weighted currencies. A
policy of modest to gradual appreciation of the Singapore dollar
has long been maintained, with a slight tightening bias adopted
in October last year when inflation started creeping up.
'The
balance of risks is slowly shifting towards the growth side. And
I think it is going to be challenging for monetary policy
implementation,' said Kit Wei Zheng, economist at Citigroup.
Citigroup has slashed its 2008 GDP forecast for Singapore
to 5.6 percent from 6.2 percent to reflect 'expectations that
exports face greater headwinds in the first half of the year.'
The bank is expecting inflation to average 5 percent.
'The
MAS is probably hoping slower growth will bring down the
inflation number but this is by no means a foregone conclusion,'
Kit said.
Backing growth
Most economists are
expecting the MAS to maintain its current policy to support the
economy, while allowing inflation to overshoot its target of
3.5-4.5 percent.
Against a backdrop of slowing external
demand - the US economy seems to be on the brink of recession and
the European Union is also exhibiting signs of weakness - the MAS
is unlikely to favor a much stronger currency.
'Inflation
is a concern but there is also growing downside risk on growth so
I don't think MAS would want such a strong pace of dollar
appreciation that will stifle the exports sector,' said Ho Woei
Chen, economist at United Overseas Bank.
The MAS will
conduct its semi-annual review of its monetary policy in
April.
HSBC economist Robert Prior-Wandesforde, meanwhile,
expects MAS won't completely ignore the soaring consumer price
index (CPI) number, even with heightened downside risks for the
economy.
'If they [MAS] are meeting at a time where
inflation may be around 6 percent, they will feel they have to do
something to try and cool inflation down even though everyone
knows it will fall back a bit in the second half of the year,'
Prior-Wandesforde' It is a slightly closer call than it was a
couple of months ago as some of the recent poor economic data may
make the MAS think twice,' he said.
Prior-Wandesforde is
expecting the MAS to either do a re-centering of the band or
adjust the band upward, allowing for a stronger appreciation of
the Singapore dollar.
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