MonetaryPolicyStatement

14October2015

INTRODUCTION
1.InApril2015,MASmaintainedthemodestandgradualappreciationpathoftheSingaporedollarnominaleffectiveexchangerate(S$NEER)policyband,
withnochangetoitsslope,widthandthelevelatwhichitwascentred.Thispolicystance,whichhasbeeninplacesinceJanuary2015,wasassessedtobe
appropriateinviewofthemoderategrowthandinflationprospects.

Chart1

2.FollowingtheMonetaryPolicyStatement(MPS)inApril,theS$NEERappreciatedamidabroadbasedretractioninUS$strength.SinceJuly,however,the
S$NEERhasweakenedandlargelyfluctuatedinthelowerhalfofthepolicyband.ThisreflectedrenewedexpectationsofUSmonetarypolicytighteninganda
riseinglobalriskaversion,mainlystemmingfromfearsofamoresignificantdownturninChinaandotheremergingmarketeconomies.ThethreemonthS$
SIBORfellfrom1.01%asatendMarch2015to0.82%bytheendofJune,beforerisingto1.14%asatendSeptember2015.

OUTLOOK
3.TheSingaporeeconomyisprojectedtoexpandatamodestpacefortherestof2015andin2016,withtheupliftfromthefirmerUSeconomytemperedby
weakergrowthprospectsintheregion.MASCoreInflationwillstaysubduedin2015,butshouldpickupgraduallyover2016,largelyduetothedissipationofthe
disinflationaryeffectsofloweroilprices,andbudgetaryandotheroneoffmeasures.

Growth
4.AccordingtotheAdvanceEstimatesreleasedbytheMinistryofTradeandIndustrytoday,theSingaporeeconomyregisteredmarginalgrowthof0.1%ona
quarteronquarter seasonally adjusted annualised basis in Q3 2015, following the 2.5% contraction in Q2. The manufacturing sector continued to decline,
reflectingpersistentweaknessintheelectronics,precisionengineering,andtransportengineeringclusters.Growthinfinancialserviceswasweakeramidthe
slowdowninlendingtotheregion.Incomparison,segmentsofthewholesaletradeandtransportationsectorswereboostedbyanupturninoilrelatedactivities
inearlyQ3.Thedomesticorientedsectorssawfurthersteadygrowthduringthequarter,partlysupportedbyincreasesinpublicresidentialconstruction.
5.TheoveralloutlookfortheglobaleconomyhassoftenedcomparedtothereviewinApril.WhiletheUSeconomyislikelytoexpandatastrongerpaceon
robustprivateconsumption,itsimportdemandhasbeenweak.IntheEurozoneandJapan,thepickupineconomicactivityisenvisagedtobegradual.Chinas
growthmomentumiseasingonasharpdecelerationininvestmentgrowth.Takentogether,thesefactorswillweighontheregionscommodityproducersand
tradedependenteconomies.Asaconsequence,thegrowthoutlookforAsiaexJapanasawholehasdimmed.
6. The subdued global growth will exert a drag on the externaloriented sectors in Singapore in the quarters ahead. Within manufacturing, the transport
engineeringclusterwillcontinuetobehamperedbyacutbackinoilexplorationactivities.TheweaknessinITproductionanditssupportingindustrieswillalso
persistduetosluggishfinaldemandandongoingreconfigurationsintheelectronicscluster.Incomparison,thedomesticorientedsectorsshouldexpandata

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S$NominalEffectiveExchangeRate(S$NEER)

moderatepace,underpinnedbysustaineddemandforhealthcareandeducationservices,aswellaspublicinfrastructurespending.GDPgrowthinSingaporeis
likelytocomeinataround22.5%in2015asawhole,withriskstiltedtowardsthedownside.Theeconomyisexpectedtoexpandatabroadlysimilarpacenext
year,withcyclicalheadwindslikelytopersistintoearly2016.

Inflation
7.MASCoreInflation,whichexcludesthecostsofprivateroadtransportandaccommodation,remainedsubduedat0.3%yoyinJulyAugust2015,following
the0.2%registeredinQ2.Comparedtoayearago,importedfuelpricescontinuedtofallinQ2andJulyAugust,whichfilteredthroughtothedomesticpricesof
oilrelateditems.ServicesinflationwasdampenedbyenhancedmedicalsubsidiesandotherBudgetmeasures,SG50relatedpromotionsaswellasthemodest
passthroughofcoststoconsumerprices.Reflectingthesefactors,andfurtherdeclinesinimputedrentalsonowneroccupiedaccommodationandcarprices,
CPIAllItemsinflationfellto0.6%yoyinJulyAugust2015from0.4%inQ2.
8. External sources of inflation are likely to stay generally benign, given ample supply buffers in the major commodity markets and weak global demand
conditions.Oilpricesareprojectedtoremainlowandincreaseonlyslightlyin2016.Onthedomesticfront,somewagecostpressuresremain,buttheirpass
throughtoconsumerpriceswillcontinuetobeconstrainedbythesubduedgrowthenvironment.Meanwhile,thedisinflationaryeffectsoflowerglobaloilprices,
BudgetmeasuresandSG50pricepromotionswillbegintofadefromtheendofthisyear.Asaresult,MASCoreInflationisforecasttorisegraduallyoverthe
courseof2016towardsitshistoricalaverageofcloseto2%.Fortheyearasawhole,MASCoreInflationisprojectedtoaverage0.51.5%in2016,comparedto
around0.5%in2015.
9.CarpricesandimputedrentalsonowneroccupiedaccommodationwilldampenoverallinflationamidtheexpectedincreaseinthesupplyofCOEsand
newlycompletedhousingunits.CPIAllItemsinflationisforecasttocomeinataround0.5%in2015,and0.50.5%in2016.

MONETARYPOLICY
10.TheSingaporeeconomyisprojectedtoexpandatamodestpacein2015and2016,withgrowthslightlyweakerthanearlierenvisaged.MASCoreInflation
isexpectedtopickupgraduallyoverthecourseof2016towardsitshistoricalaverage.
11.MASwillthereforecontinuewiththepolicyofamodestandgradualappreciationoftheS$NEERpolicyband.However,therateofappreciationwillbe
reducedslightly.Therewillbenochangetothewidthofthepolicybandandthelevelatwhichitiscentred.Thismeasuredadjustmentfollowsthemoveto
reducetherateofappreciationofthepolicybandinJanuarythisyear,andissupportiveofeconomicgrowthinto2016,whileensuringpricestabilityoverthe
mediumterm.
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LastModifiedon14/10/2015

Copyright2016MonetaryAuthorityofSingapore