Singapore is Unconvinced!

Singapore is yet to be convinced that an early economic rebound can be sustainable. As such on Oct 12, its central bank kept its loose monetary policy unchanged. Economists now expect tightening only to begin next year.

New data has shown the economy expanded a forecast-beating 0.8 per cent in the third quarter from a year ago, returning to growth after three quarters of contraction. however, the central bank was quick to point out that there continue to be no decisive recovery in export demand.

This cautious outlook for export-dependent Singapore mirrors its policymakers’ concerns from the United States to South Korea that an economic revival could taper off, underscoring the urgent 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 an 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 US dollar, down nearly 0.4 per cent 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 per cent to 2 per cent 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.

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 per cent 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 per cent, from a forecast of a contraction of 6 to 4 per cent.

“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.

So, do not bring out the beer cans out yet, hear?