30 July 2008

The SGD was essentially steady against USD after appreciating sharply earlier in the year after the Monetary Authority of Singapore’s (MAS) re-fixed the central rate within the policy band. Subsequently, the MAS reiterated that it would maintain its three-year-old policy of allowing a “modest and gradual” appreciation against a trade-weighted basket of foreign currencies. The appreciation is likely to help fight imported inflation. Market forecasts the currency to strengthen steadily over the course of the next 12 months.

The CPI climbed 7.5% in June, matching April’s pace that was a 26 years high. In addition to energy and food prices, the tight labor market has begun to push up wage costs, but the continuing inflow of foreign workers and the rising labor participation rate will help contain wage demands. The MAS has revised up its inflation forecast to 6.0%-7.0% for 2008 from 5.0%-6.0%. This will tend to keep monetary policy steady.

The economy has held up despite slowing U.S. demand and volatile credit markets. Retail sales rose 4.8% from a yr ago to S$2.90 billion in May, primarily held up by strong fuel prices. In particular, motors vehicle sales fell by an annual 1.9 percent, which dragged down the overall retail sales.

GDP eased 1.90% in 2Q after rising 6.90% in 1Q. The domestic economy will continue to be bolstered by strong employment growth, rising real wages and stable property prices.

Singapore's non-oil domestic exports slid 10.5% in June from a year earlier, after posting a similar decline in May, the government's trade promotion agency said on July 17. Since exports are such an important component of Singapore’s growth, it underscores the nation’s exposure to slower global demand.

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