SINGAPORE (Mar 4): Singapore’s monetary policy stance remains appropriate for current conditions and there is no need for policy stimulus if the economy performs as expected, central bank managing director Ravi Menon said.

Growth will probably come in at the midpoint of the 1.5% to 3.5% forecast range for this year, or slightly lower, bringing “the economy back to its potential,” Menon said at an event hosted by Citigroup in Singapore on Feb 27. “There’s no need for stimulus if this continues this way.”

While the central bank’s stance is “appropriate”, given the current growth and inflation dynamics, “what we do in April is a totally different matter”, he said. “Two months is a long time, so we’ll see how it looks like then.”

The Monetary Authority of Singapore, which tightened policy twice last year, is scheduled to announce its next decision in April. It uses the exchange rate, rather than interest rates, as its main policy tool.

The latest inflation data was “well within the 1.5%-to-2.5% range we see for core inflation”, Menon said. The fiscal spending coming through is “going to be neutral”, he added. “So, things are pretty much as expected, and unchanged” for the Singapore picture, he said.

If there is a sharper-than-expected slowdown, Singapore’s economy has the “resilience to absorb the shock”, Menon said, according to written remarks released by MAS after the event. “It also has the policy space to respond to mitigate the impact.”

The Singapore dollar was little changed at 1.3476 to the US dollar as at 4.05pm on Feb 27, after dropping as much as 0.1% earlier in the day.

Across the rest of Asia, there is no reason to ease either, Menon said. Central banks responded “appropriately and sensibly” last year by hiking interest rates as their currencies came under pressure. And with global pressures easing this year, there is more policy space to focus on domestic factors rather than the current accounts, he said.

“I don’t think there’s any compelling need to ease monetary policy” in Asian economies, he said.

Menon also made the following comments:

•             The global economy is not heading for a hard landing in 2019, and while China is slowing, it is reaching a more “sustainable” growth rate;

•             “Downside risks have clearly increased” and policy buffers to respond are “much smaller today”;

•             Among the downside risks to the global economy are trade tensions. There are “mixed signals” on whether a US-China trade deal can be reached. There is a “real possibility” of US tariffs on automobiles;

•             Brexit is also a risk, and March is going to be a “critical month”, with trade negotiations and the Brexit deadline;

•             The US economy is in a “much better place” even if US interest rates, at this point in the cycle, “are still very low”;

•             “Asia is also moderating in growth”, but labour markets are still “buoyant”, financial conditions have “loosened” this year compared with last year and lower oil prices are helping a lot of economies;

•             “The key risk in emerging Asia is leverage” for households and businesses, which “bears close watching” in many countries; and

•             The US Federal Reserve shrinking its balance sheet could lead to “pockets of vulnerabilities”, but no systemic risk is seen. 

This story appears in The Edge Singapore (Issue 871, week of Mar 4) which is on sale now. Subscribe here