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Singapore policy easing expectations fade even as CPI falls persist
May 14, 2015 / 3:56 AM / 2 years ago

Singapore policy easing expectations fade even as CPI falls persist

GRAPHIC: Singapore CPI: link.reuters.com/ted74w

By Masayuki Kitano SINGAPORE, May 14 (Reuters) - Singapore's longest spell of consumer price falls since 2009 looks set to persist for a few more months, but economists expect stabilising oil prices and a continued global economic recovery to offer the central bank good reason to stand pat on policy for the rest of 2015.

Singapore's consumer price index (CPI) dropped 0.3 percent in March due to falls in housing rents and lower private-transport costs, marking the fifth consecutive month of year-on-year declines. But core prices, which exclude accommodation and private transport costs, are still on the rise, helped by higher food and education costs. Many economists now say the overall CPI will stop falling around the third quarter, as they lower expectations of a policy easing.

In January, the Monetary Authority of Singapore (MAS) relaxed monetary policy, which is based on the exchange rate, saying the inflation outlook had "shifted significantly" due to plunging oil prices. The timing of the move surprised economists, as MAS had not been due to review its policy until April. The MAS decision triggered a drop in the Singapore dollar. By mid-March, the currency was trading at a 4-1/2 year low of 1.3938 against the U.S. dollar.

MAS then left policy unchanged in April, quashing some expectations of a second round of easing. Economists now say MAS is unlikely to consider further easing unless the global economic outlook deteriorates and threatens the government's 2-4 percent annual GDP growth forecast, or the core CPI starts to fall from year-ago levels. "If core inflation, say, falls to negative, that would increase the probability of their easing," said Michael Wan, an economist for Credit Suisse.

Singapore manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners in an undisclosed band. Singapore's top trading partners include the European Union, the United States, China and Malaysia. The policy is typically reviewed every April and October. (Editing by Ryan Woo)

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