Singapore central bank keeps policy unchanged, flags slower 2018 growth

By Masayuki Kitano and Aradhana Aravindan

SINGAPORE (Reuters) - Singapore's central bank kept its monetary policy unchanged on Friday, even as third-quarter economic growth beat market expectations, saying the economy could moderate next year as the global recovery enters a more mature phase.

The Monetary Authority of Singapore (MAS) said it would maintain the rate of appreciation of the Singapore dollar's policy band at zero percent, adding that the width and the level at which it is centred will be unchanged.

The trade-reliant economy grew 6.3 percent in the third quarter from the previous three months on an annualised basis, data from the Ministry of Trade and Industry showed, much faster than the median forecast in a Reuters survey of 3.2 percent. Economists attribute the strong growth to robust global demand for the production of electronic goods.

However, the central bank said while growth in Singapore's major trading partners is expected to remain firm next year, it could moderate as the global economic recovery stabilised.

Some analysts say the central bank's policy statement suggests it holds a cautious view about growth next year while also keeping some space for policy adjustment if economic conditions provide a positive surprise.

"We expect the global electronics cycle to remain strong until the end of this year and then start petering out early next year," NatWest Asia Economist Vaninder Singh said in a note.

"For this reason, we are leaving our base case view unchanged at this stage for no change from the MAS in April next year as well. Of course, the data in the interim will bear close watching."

The MAS said core inflation is projected to come in at around 1.5 percent in 2017 and average 1-2 percent next year, adding that core inflation is expected to average slightly below 2 percent in the medium term.

Singapore manages monetary policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against the currencies of its main trading partners within in an undisclosed policy band.

The Singapore dollar slipped after the MAS policy decision, and was last down 0.2 percent on the day at 1.3545 per U.S. dollar.

ASIAN POLICY DIVERGENCE

Singapore's policy stance tracks similar postures by other central banks in the region, which are increasingly shifting away from closely tracking U.S. monetary policy.

"They don't think they have to follow the Federal Reserve tit-for-tat," said Selena Ling, head of research and strategy for OCBC Bank, referring to the U.S. central bank's policy tightening bias.

"The read of this statement is that they are a little bit more upbeat on the economic side, but still fairly cautious and a little bit dovish, in terms of the inflation outlook. The window is open for 2018," Ling added.

Twenty-four of 25 analysts in a Reuters survey predicted the MAS would keep monetary policy unchanged this month, given the lack of strong inflationary pressures, while one analyst expected a tightening.

"This is a bit akin to the European Central Bank where growth has picked up but inflation hasn't picked up to the point where they need to pull the trigger on tightening policy," said Michael Wan, an economist for Credit Suisse.

(Reporting by Masayuki Kitano and Aradhana Aravindan; Additional reporting by Anshuman Daga and Fathin Ungku; Editing by Sam Holmes)