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Singapore's first monetary policy tightening in six years comes with trade warning

Reuters  |  SINGAPORE 

By and Aravindan

(Reuters) - tightened monetary policy for the first time in six years on Friday, saying the city-state's economy should continue to grow, even as it acknowledged risks from a possible escalation of U.S.-trade tensions.

The Monetary Authority of (MAS) said it would slightly increase the slope of the dollar's policy band from zero percent previously, while keeping the width and mid-point of the band unchanged.

"This policy stance is consistent with a modest and gradual appreciation path of the nominal effective exchange rate policy band that will ensure medium-term price stability," the MAS said.

The central added that Singapore's economy should continue on a steady expansion path in 2018, but also pointed to potential risks from a U.S.-trade spat.

"An escalation of the US-trade dispute remains possible, and if it occurs, will have significant consequences for global trade," the MAS said.

data released on Friday showed Singapore's trade-reliant economy grew 1.4 percent in the first quarter from the previous three months on an annualised and seasonally adjusted basis. The median forecast in a survey was an expansion of 1.0 percent.

expanded 4.3 percent in the January-March quarter from the same period a year earlier, matching the median forecast in a survey.

The dollar edged higher after the policy decision and GDP data, and was last up about 0.1 percent at S$1.3102 per U.S. dollar.

"It's really more meant to be a pre-emptive move just to take into account that core inflation is trending a bit higher between this year and next year," said Selena Ling, of Treasury Research and Strategy at

Ling said the tone of the statement sounded fairly cautious, adding that she did not think the MAS would need to tighten policy again at its next semiannual decision due in October.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, letting the dollar rise or fall against the currencies of its main trading partners within in an undisclosed policy band based on its nominal effective exchange rate.

The central has kept the appreciation rate of the dollar's policy band at zero percent since April 2016, in what the central describes as a "neutral" policy stance.

Twelve of 19 analysts in a survey predicted the MAS would tighten monetary policy this month by slightly increasing the appreciation rate of the dollar's policy band from zero percent.

The remaining seven analysts expected the central to keep its policy-settings unchanged.

At its last policy review in October, the MAS changed the wording of its statement about maintaining its neutral policy stance, a shift that analysts said created room for the central to tighten policy in 2018.

(Reporting by and Aravindan; Additional reporting by Anshuman Daga, and Dewey Sim; Editing by Sam Holmes)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, April 13 2018. 06:53 IST
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