By Wong Siew Ying | Posted: 25 July 2012 1250 hrs
SINGAPORE: The
Monetary Authority of Singapore (MAS) on Wednesday revised its 2012
consumer inflation forecast for Singapore to 4 per cent to 4.5 per cent
from 3.5 per cent to 4.5 per cent.
This is because the central bank expects housing rentals and COE premiums to remain high.
However, the MAS kept unchanged its core inflation forecast of 2.5 per cent - 3.0 per cent for the year.
The
MAS core inflation measure, which excludes costs for accommodation and
private road transport, moderated to 2.7 per cent in the April-to-June
quarter.
"It (core inflation) is likely to ease further and
approach 2 per cent by the end of the year. This is not far from the
historical average of 1.7 per cent," MAS managing director Ravi Menon
said at a news conference.
Local food inflation should remain relatively contained for the rest of the year, he added.
However, economists warn that food prices could trend up.
"We
do have El Nino, there is potential risk of supply disruptions, we've
already seen inflation of certain food items from the US suffering from
the drought including higher wheat prices, higher corn prices," Song
Seng Wun, regional economist from CIMB, said.
Official figures on
Monday showed Singapore's Consumer Price Index (CPI) inflation rate
rose to 5.3 per cent year-on-year in June from 5.0 per cent the previous
month. The CPI rose by 5.1 per cent in the first half of the year, down
from 5.5 per cent in the second half of 2011.
Mr Menon said
bringing down inflation remains one of the central bank's top
priorities. To keep inflation in check, MAS has tightened its monetary
policy to allow the Singdollar to appreciate.
"Our simulations
show that if this appreciation had not taken place, CPI-All Items
inflation this year would have been 6.5 to 7 per cent, rather than the 4
to 4.5 per cent we have projected," he said.
The MAS said its current monetary policy stance remains appropriate.
The next monetary review is due in October.
UOB's
senior economist, Alvin Liew, said: "Against the inflation outlook, it
is hard to see whether they (MAS) can tilt the monetary policy towards
an easing bias. Tightening is not on the cards as well, as the growth
outlook is on the weaker side for 2012."
On Singapore's economic
outlook, MAS retained its projection that the economy would grow
between 1 per cent and 3 per cent this year.
But Mr Menon warned
that Singapore's economic growth could dip below 1 per cent for 2012 if
several downside risks take a turn for the worse.
These
scenarios include a recession in the US, significant escalation of the
eurozone crisis and a "hard landing" for China's economy.
Still,
growth momentum is slowing and the MAS expects average growth in the
second half to be lower than the first six months of the year.
Singapore's gross domestic product grew an average of 4.2 per cent in the first half of 2012.
Mr
Menon also said a deeper recession and a credit crunch in the eurozone
will affect trade and could cause a credit squeeze in the financial
system.
"But our financial system is sound and we should be able to weather the storm," he said.
"We
have been carrying out periodic industry-wide stress tests. The tests
suggest that major financial institutions in Singapore would be able to
withstand adverse financial and economic shock."
Mr Menon was speaking at an event to launch the central bank's annual report for the year ended March 31, 2012.
MAS
made a net profit of S$2.77 billion in fiscal 2011/12, reversing from
the loss of S$10.94 billion in the previous financial year when the
strong local dollar reduced the value of reserves held in other
currencies.
Mr Menon said MAS made foreign investment gains of
S$12.1 billion, but overall net profit came in at S$2.77 billion due to a
strong exchange rate.
- CNA/cc/ir/wm