Singapore central bank: current policy stance appropriate, economy faces Brexit uncertainty

Economy

SINGAPORE (Reuters) - Singapore's current monetary policy stance is appropriate for economic conditions in 2016, and there is no need for a change unless there is a marked worsening in the global economy or large shift in the inflation outlook, the city-state's central bank said on Monday.

Singapore's economic growth remains sluggish and its performance in the second half of this year will not be too different from the first half, said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS).

"MAS is monitoring global developments closely. Unless there is a marked deterioration in the global economy or significant shift to the inflation outlook, there is no need to change the monetary policy stance," Menon said at a news conference.

In its annual report released on Monday, the MAS said the economy faces added uncertainty after Britain's vote to leave the European Union. It said growth is likely to remain modest, while core inflation is seen rising at a milder pace than previously expected.

Singapore's economy is expected to grow 1-3 percent in 2016, unchanged from earlier official forecasts, said the central bank, which eased monetary policy in April.

Britain's June 23 vote to leave the EU has sparked fears of another blow to the already sluggish global economy, with the International Monetary Fund last week cutting its global growth forecasts for the next two years.

"The Singapore economy is expected to continue on a modest and uneven growth path, with further uncertainty arising from recent developments in the UK and the Eurozone," the MAS said.

Such Brexit-related uncertainty could lead to "further financial market volatility, with possible knock-on effects on financial intermediation and capital flows globally, and economic growth more generally."

Singapore's economy grew slower than expected in the second quarter, keeping pressure on the central bank to ease policy further.

The MAS said external sources of inflation are likely to remain subdued due to weak global demand, and with average global oil prices expected to be lower in 2016 than last year.

"On the domestic front, softer employment conditions will lead to a slowdown in wage growth," MAS said.

With the disinflationary drag from global oil prices and budgetary and other one-off subsidies likely to fade, core inflation is expected to pick up gradually over the course of 2016, it said.

"However, this increase will be milder than earlier anticipated, reflecting the weaker external price outlook and domestic growth prospects, as well as reduced tightness in the labour market," MAS said.

Turning to the property market, the MAS said there has been a "measured decline" in property prices after the central bank introduced a series of property-cooling measures since 2009, but added that it wasn't letting its guard down.

After reaching a peak in the third quarter of 2013, private residential property prices have declined by an average 0.9 percent each quarter over 10 consecutive quarters, the MAS said.

"MAS remains vigilant for signs of renewed froth in the property market on the back of still-elevated prices in certain market segments," the central bank said.