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Singapore central bank tightens policy for 2nd time in 2018

Singapore's central bank tightened monetary policy for the second time in 2018 amid a recent uptick in core inflation and expectations for the economy to continue expanding at a steady pace driven by services sector growth.

The Monetary Authority of Singapore slightly increased the slope of the Singapore dollar's policy band, while maintaining its width and the level at which it was centered.

"This measured adjustment follows the slight increase in the slope of the policy band in April 2018 from zero percent previously, and is consistent with a modest and gradual appreciation path of the [Singapore dollar nominal effective exchange rate] policy band that will ensure medium-term price stability," MAS said.

MAS core inflation, which excludes the costs of accommodation and private road transport, climbed to an average of 1.9% year over year in July-August, from 1.5% in the first half, due to stronger price hikes in oil-related items, food and retail goods.

Core inflation should edge higher to around 2% in the months ahead, with the 2018 average likely coming within the forecast range of 1.5% to 2% and the 2019 average expected at between 1.5% and 2.5%. This is forecast to then settle at just below 2% over the medium term, MAS said.

The Singapore economy grew by 2.6% year over year in the third quarter, slowing from 4.1% in the prior quarter, advanced estimates from the Ministry of Trade and Industry showed Oct. 12. On a quarter-over-quarter seasonally adjusted annualized basis, the economy expanded by 4.7% during September quarter, picking up from 1.2% in the second quarter.

MAS said Singapore GDP growth will likely come within the upper half of the 2.5% to 3.5% forecast range in 2018 and moderate slightly in 2019. It added that the level of economic activity has been assessed as slightly above potential.

"Although manufacturing will remain an important driver of GDP growth, its contribution will moderate," the central bank noted, while the financial and business services sectors will be buoyed by steady regional growth, and retail and food services sectors will see some recovery.