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UPDATE 2-Singapore keeps monetary policy unchanged, Q3 GDP jumps

Published 10/11/2009, 10:15 PM
Updated 10/11/2009, 10:18 PM
BARC
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* Central bank: no decisive recovery in export demand

* Says risk of global inflationary pressures

* Q3 GDP expands 14.9 pct QoQ SAAR vs 13.2 pct estimate

* Q3 GDP rises 0.8 pct YoY vs 0.25 pct estimate

* 2009 GDP forecast revised up to -2.5 to -2 pct (Updates with details, quotes)

By Nopporn Wong-Anan

SINGAPORE, Oct 12 (Reuters) - Singapore's central bank kept its loose monetary policy unchanged on Monday because it is unconvinced an economic rebound can be sustained, leaving economists to expect tightening next year.

The decision came as the economy expanded a forecast-beating 0.8 percent in the third quarter from a year ago, returning to growth after three quarters of contraction, though the central bank said there was no decisive recovery in export demand.

The cautious outlook for the export-dependent country mirrored policymakers' concerns from the United States to South Korea that an economic revival could taper off, underscoring the need for growth-supporting policies.

"Going forward, do we see this kind of growth in Q4? It is quite unlikely," said Wai Ho Leong, economist at Barclays in Singapore. "On the policy front ... the chances are the central bank is building towards April normalisation."

The Monetary Authority of Singapore, which next reviews policy in April, manages the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.

The currency fell as far as 1.4010 per U.S. dollar, down nearly 0.4 percent from Friday's close and compared to levels of 1.3950 just before the policy announcement. The Singapore dollar had risen last week as some investors had placed bets on a possible tightening of policy.

The central bank said there could be some upward consumer price pressure from higher oil and food prices, though underlying domestic cost pressures will be contained. It forecast inflation of 1 percent to 2 percent next year.

"MAS will continue to be vigilant over developments in the external environment including the medium-term risk of stronger global inflationary pressures," the Monetary Authority of Singapore (MAS) said in a statement.

For the central bank's full statement see.

ON THE REBOUND

Singapore's economy continued to grow robustly in the third quarter as the base of the recovery extended beyond pharmaceuticals into the wider manufacturing and services industries.

GDP grew 14.9 percent from the previous quarter on a seasonally adjusted basis.

The government lifted its forecast for 2009 GDP to a contraction of between 2.5 to 2 percent, from a forecast of a contraction of 6 to 4 percent.

"Inflationary pressure is still benign, growth is showing steady improvement. But overall economic fundamentals and external conditions are still below the historical trend, or where MAS would extend a tightening policy," said Irvin Seah, economist at DBS Group in Singapore. (Additional reporting by Harry Suhartono and Kevin Lim; Writing by Neil Chatterjee; Editing by Jan Dahinten)

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