Singapore Says Monetary Policy Appropriate Amid Slow Recovery

By Shamim Adam

May 7 (Bloomberg) -- Singapore’s central bank, which devalued the country’s currency last month, said monetary policy remains “appropriate” amid signs the economy may be past the worst of its recession.

“Our assessment at this point is our policy remains appropriate,” Monetary Authority of Singapore Managing Director Heng Swee Keat said in an interview yesterday. “We expect a gradual recovery. It’s not likely to be a sharp rebound.”

The worst global recession since World War II has led to an 11-month slump in Singapore exports, forcing companies including Chartered Semiconductor Manufacturing Ltd. to fire workers and prompting authorities to cut taxes and subsidize jobs. The International Monetary Fund said yesterday the Southeast Asian economy may shrink 10 percent this year.

Prime Minister Lee Hsien Loong’s government expects the economy to contract as much as 9 percent in 2009, the most since independence in 1965. Still, exports rose 10.8 percent in March from the previous month, suggesting the worst may be over. The IMF expects the decline in Singapore’s gross domestic product to narrow to 0.1 percent next year.

It’s “still too early” to predict if GDP will grow in 2010, Heng said. “We will need a recovery in advanced economies before our exports will recover strongly. The good thing is, because we are so open when the global economy recovers, we will be among the first to bounce back quickly.”

Singapore is the worst hit by the global slump among Asia’s export-dependent economies, and is forecast to post the deepest GDP contraction in the region this year, according to the IMF.

No Alternative

Still, there is limited room for the nation to move away from an export-led growth model, and Singapore is better off with its existing economic structure, Heng said.

“There is not a meaningful alternative model than remaining integrated in the global economy,” Nouriel Roubini, the New York University economics professor who predicted the financial crisis, said in Singapore yesterday. “Being open and integrated has been beneficial to this country, apart from the temporary bumps that occur once in a while.”

Singapore’s gross domestic product has shrunk 11.7 percent since the first three months of 2008, according to the central bank. Industrial production fell the most in at least 13 years in March, and exports dropped 17 percent from a year earlier.

The central bank said last month it would adjust the trading range for the island’s currency, a move economists say effectively devalued the exchange rate. The depreciation was less than what traders were expecting, and Heng said April 18 those who expected more were wrong because there was no reason for “any undue weakening.”

Stick to Stance

Changing monetary policy is “not something we do in response to short-term data,” Heng said yesterday. “As long as it’s appropriate, as we take into account medium-term inflation and growth, we will stick to our stance.”

The central bank expects consumer prices to remain unchanged or fall 1 percent this year. Inflation slowed to a 21- month low of 1.6 percent in March.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net