Finance & Business World

Mexico’s economy probably shrank the most in three decades last quarter as the global recession and the outbreak of swine flu curbed industrial output and fueled job losses, the finance ministry said.

Gross domestic product may have contracted 10.4 percent in the second quarter from a year earlier after declining 8.2 percent in the previous three months, the ministry said in an e- mailed report yesterday. The government is due to release last quarter’s GDP figures on Aug. 20.

“In the second quarter of 2009, the external environment continued to be adverse,” the ministry said. “The flu outbreak temporarily affected activity in several sectors and regions, particularly in those related to tourism and leisure.”

Mexican job losses have accelerated this year as the recession in the U.S., which buys about 80 percent of the nation’s exports, saps demand for products. The central bank said this week the economy will shrink in 2009 at almost double the pace it previously forecast, predicting a contraction of 6 first cash advance.5 percent to 7.5 percent.

A contraction of 10.4 percent in the three months to June 30 would be the biggest decline in GDP since at least 1980, according to Bloomberg quarterly data that starts from the first three months of 1981.

Industrial production plunged 12.1 percent in April and May from a year earlier, while formal jobs declined 4.1 percent in June compared with the same month in 2008, according to the ministry’s report. Mexico had a budget deficit of 94.6 billion pesos ($7.1 billion) in the first half of the year, it said.

Public revenue fell 7.8 percent in the first half of the year compared with the same period last year as oil and tax revenue dropped, the ministry’s report said.

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China’s central bank said it will use market tools to control lending growth and affirmed a “moderately loose” monetary policy to support the nation’s economic recovery.

The People’s Bank of China will “emphasize the use of market tools instead of quantity controls to guide appropriate growth in money supply and lending” in the second half, Deputy Governor Su Ning said in a statement posted on the bank’s Web site late yesterday.

Shanghai’s benchmark stock index fell for a second day on speculation credit will tighten. China has pushed up money- market rates in open-market operations in the past month and resumed one-year bill sales as policy makers seek to restrict funds for stocks and real-estate investment without derailing a 4 trillion-yuan ($585 billion) economic stimulus plan.

“The market has accepted that it’s only a matter of time before the PBOC takes some serious actions,” said Li Wei, an economist at Standard Chartered Plc in Shanghai. “Everybody knows new loans growth is going to slow in the second half. In the first half, the monetary policy was extremely loose, now the policy has already changed.”

The Shanghai Composite Index slid 1.2 percent as at 11:30 a.m. local time. The benchmark dropped 5 percent yesterday after a report that two of the nation’s biggest banks set ceilings on new loans, spurring concern credit growth will slow. China’s overnight money-market rate rose for the first time in more than a week on speculation the availability of credit is tightening.

Top Priority

The central bank’s statement, which reiterated earlier comments, came hours after the biggest drop in the benchmark stock index in eight months yesterday. Last week, the bank said it would use monetary-policy tools to guide “appropriate” growth in credit, work to control loan risks, and maintain a “moderately loose” monetary policy unique business cards.

“To continue to foster the relatively smooth and fast economic development is the top priority,” Su said at a recent meeting at the Shanghai branch of the central bank, according to the latest statement. The central bank should “maintain continuity and stability in macro-economic policy and strictly stick to the moderately loose monetary policy,” he said.

China’s credit growth will slow from the “unsustainable” pace seen this year to about 15 percent in 2010 as a strengthening economy reduces the need for loan support, Goldman Sachs Group Inc. said in a note dated yesterday.

Lending Spree

Chinese banks, which advanced a record 7.37 trillion yuan of new loans in the first half, created the equivalent of two Indian banking industries and stoked concerns that loan quality may drop, Goldman Sachs analysts led by Roy Ramos said.

The lending spree, encouraged by the government to support its stimulus package, has also fanned concerns that asset bubbles will form, and prompted the nation’s banking regulator to call on lenders to control the flow of credit several times since last week.

Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the nation’s two largest lenders by assets, aim to cap their new loans at 200 billion yuan in the second half, 21st Century Business Herald reported today, citing people it didn’t identify.

M2, the broadest measure of money supply, rose a record 28.5 percent in June from a year earlier, after a 25.7 percent gain in May. China’s economy expanded 7.9 percent in the second quarter as the nation became the first major economy to rebound from the global recession.

–Ye Xie, Judy Chen, Stephanie Phang. Editors: John McCluskey, Paul Panckhurst.

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Australia’s central bank Governor Glenn Stevens may not wait for signs that unemployment has peaked before raising borrowing costs from a half-century low.

“I’ve never seen written down or heard in discussion some rule of thumb that says we wait until unemployment is peaking before we lift the cash rate,” Stevens said in Sydney yesterday. “Hopefully” policy makers will find “a suitably timely way of returning to normal when the right time for that comes.”

Australian stocks and the currency rose after Stevens also said the economy may rebound faster than the central bank forecast six months ago as consumer and business confidence surges. Traders boosted bets on the size of future interest-rate increases.

Stevens “basically said he’s not going to wait for unemployment to peak before raising rates,” said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. “That’s a fairly controversial thing for him to say,” and reflects the fact “the world is a much brighter place than it was three months ago.”

In the past two decades policy makers have never lifted borrowing costs at a time of rising unemployment, Robertson said.

Investors forecast the overnight cash rate target will be 112 basis points higher in a year, a Credit Suisse Group AG index based on swaps trading showed at 10:16 a.m. in Sydney. Before Stevens’ speech, they tipped 98 basis points of gains. A basis point is 0.01 percentage point.

Currency, Stocks

The Australian dollar rose yesterday after the speech to 83.38 U.S. cents, the highest in ten months. The currency traded at 82.45 cents as of 10:23 a.m. in Sydney.

Australia’s benchmark S&P/ASX 200 Index of stocks rose 0.7 percent yesterday as shares of retailers including Billabong International Ltd. jumped following Stevens’ remarks. The world’s largest publicly traded surfwear maker advanced 5.5 percent and Harvey Norman Holdings Ltd., the nation’s biggest electronics retailer, gained 1.5 percent. The index was down 0.3 percent today.

It appears “that the downturn we are having may turn out not to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other countries,” the Reserve Bank chief told a function organized by the Australian Business Economists low fee payday loans.

“We can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six month ago.”

‘Not Beholden’

The government forecast in May that the jobless rate, which rose to 5.8 percent in June, will hit 8.5 percent in a year. The central bank, which also forecast in May that unemployment will climb without specifying a rate, is due to revise its economic predictions next month.

Stevens is saying “that he’s not going to be beholden to one particular variable if the weight of evidence is in the other direction,” said Joshua Williamson, a senior economist at Citigroup Inc. in Sydney.

“The downturn has been much less acute than feared, we’ve had a mountain of monetary and fiscal policy” and Stevens has “to make policy that’s relevant now and not based on some historical artifact.”

The governor left the benchmark overnight cash rate target at 3 percent on July 7 for a third month amid evidence a record 4.25 percentage points of cuts between September and April and A$12 billion ($9.9 billion) of government cash handouts to low and middle-income earners helped the nation skirt a recession.

‘Glass Half Full’

Signs of a rebound in Australia’s economy, which unexpectedly grew 0.4 percent in the first quarter after shrinking 0.6 percent in the fourth quarter, may prompt the central bank to revise its forecast for gross domestic product on Aug. 7.

In May, the bank predicted GDP would contract 1 percent this year before expanding 2 percent in 2010.

“It is becoming more common for Australians to see the glass as half full than as half empty,” Stevens said yesterday.

Stevens’ comment that there is no rule that the bank can’t raise rates before the unemployment rate peaks “makes us wary that he is preparing to break from convention,” said Felicity Emmett, an economist at Royal Bank of Scotland Group Plc in Sydney. “We have to be open to the Reserve Bank tightening.”

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Former Bank of England policy maker David Blanchflower said the central bank risks cutting the economic recovery short and should expand the program to buy bonds with newly created money.

Any growth in the economy will be “pretty anemic, pretty slow for a year or two,” said Blanchflower in an interview with Bloomberg Television yesterday from Dartmouth College in Hanover, New Hampshire, where he is professor of economics. “My worry is that the tightening comes too soon and people kill off any recovery that’s coming.”

The pound rose and bonds fell after policy maker Andrew Sentance said the Bank of England will consider pausing the 125- billion pound ($207 billion) bond-purchase program next month. The British economy will show signs of recovery in the second half of 2009 after contracting for a year, Sentance said payday loan.

“It’s very early days to say that you know the endgame is even in sight,” Blanchflower said. The bank should consider spending as much as 300 billion pounds in newly printed money, twice as much as the current total authorized by the government, he said.

U.K. gross domestic product fell 0.8 percent in the second quarter from the first three months of the year, the Office for National Statistics said today in London. That’s more than twice the 0.3 percent median forecast in a Bloomberg News survey of 32 economists.

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Colombia’s central bank will probably keep its benchmark rate unchanged today after seven straight reductions as inflation slows and the economy shows signs of a recovery.

The seven-member board, led by bank chief Jose Dario Uribe, will maintain the interbank rate at 4.5 percent, according to 20 of 22 economists surveyed by Bloomberg. Two analysts forecast a half-point cut.

“We’re starting to see the impact of lower interest rates,” said German Verdugo, head analyst at Bogota-based brokerage Correval SA. “If they lowered the rate more, they would be risking too much inflation. We’re seeing recovery in consumer and corporate confidence.”

Colombia’s economy will probably shrink for a third consecutive quarter in the three months through June, Uribe said July 10, the longest contraction since 1999, before resuming its expansion. Policy makers have room to pause for the “near future,” the bank chief said last month.

Consumer prices fell in June for the first time since September, putting the annual inflation rate at 3.8 percent, below the bank’s 4.5 percent-to-5.5 percent target, and less than half the 7.9 percent pace reached in October 2008.

“Lower rates could promote additional growth, but this is a pretty potent stimulus at 4.5 percent, and they need to be in a position to cap inflation when the economy rebounds,” said David Duarte, a Latin America analyst at 4Cast Inc. in New York.

Economic Outlook

The government maintained its official economic growth forecast for 2009 at 0.5 percent to 1.5 percent even after the economy entered recession with a 0.6 percent contraction in the first quarter compared with the same quarter a year earlier.

Policy makers last year pushed borrowing costs up to a seven-year high, leading to lower consumer lending, industrial output and retail sales. Before beginning to cut rates in December, the bank’s seven-member board increased them 16 times over 2 1/2 years to curb inflation.

Retail sales fell 3.5 percent in May from a year earlier, while industrial output declined 6.5 percent in May from a year earlier, the national statistics agency said last week.

Uribe and Finance Minister Oscar Ivan Zuluaga have said the country isn’t in a recession since Colombia’s gross domestic product expanded 0 best life insurance company.2 percent in the first quarter of 2009 compared with the fourth quarter of 2008.

Second-Half Rebound

The bank chief has said policy makers expect the economy to revive in the second half of 2009 and end the year with slightly positive growth. The government estimates 2010 gross domestic product growth of 2.5 percent, Zuluaga said June 16.

In announcing the board’s decision to trim the overnight rate to the lowest in at least a decade on June 19, Uribe told reporters that “we don’t expect changes to the benchmark rate in the near future.”

Policy makers at last month’s meeting agreed that “with the data at hand, no further changes in that rate are anticipated in the near future,” according to the minutes posted on the central bank’s Web site.

The bank board may also prefer to hold the rate at 4.5 percent through year-end rather than ease further in 2009 only to be forced to raise borrowing costs in 2010, a presidential election year, said Alberto Bernal, head of emerging markets research at Bulltick Securities Corp.

“Economic activity has touched bottom and headline inflation is falling much faster than core inflation,” Bernal said. “Also, 2010 is an election year so the central bank will likely try to avoid having to raise rates.”

Prioritizing Inflation

Zuluaga, who is also president of the bank’s board, hopes as much as 55 trillion pesos ($27.9 billion) of infrastructure spending this year will also provide a boost to the economy and create as many as 800,000 jobs.

Colombia expects a budget deficit next year equivalent to 3.4 percent of gross domestic product compared with a forecast shortfall this year of 2.4 percent, Zuluaga said in June.

The current account had a deficit of $976 million in the first quarter of 2009, according to the central bank.

“Since Colombia is running twin deficits, current account and fiscal, they need to keep rates here to ensure funds keep flowing in,” Duarte said.

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The global economic outlook remains uncertain as growing protectionist sentiment threatens the world’s recovery from its deepest slump since the Great Depression, the Asia-Pacific Economic Cooperation said today.

“The main threats to a revival of trade flows include rising protectionist pressures, and continued delay in concluding the Doha Round” of world trade talks, trade ministers from the 21-member grouping said in a statement today after their meeting in Singapore.

The global slump has prompted policy makers to cut lending rates, boost spending and cut taxes to sustain growth. The International Monetary Fund and the World Bank lowered their forecasts for 2009 global growth in recent weeks, while leaders from advanced nations say the recovery is too fragile to consider reversing more than $2 trillion in stimulus efforts.

Policy responses to the economic crisis should minimize distortions to trade and investment flows, which are critical to ensure growth, the APEC ministers said, adding that the world economy appears to be bottoming out. They pledged to resist growing protectionism and renew efforts to conclude the Doha trade talks in 2010.

“It’s doable, which experience has shown doesn’t automatically mean it’s going to be done,” World Trade Organization Director-General Pascal Lamy said in an interview with Bloomberg Television today. “But we have good political energy and this huge economic crisis is focusing minds on the dangers of protectionism.”

Trade Barriers

APEC members extended their commitment to refrain from raising new barriers to trade and investment by another year until the end of 2010, the ministers said today.

“We will persist with efforts to support growth and facilitate trade and investment flows, keep our markets open and give a new push to concluding the Doha Round,” the trade ministers said. Uncontrolled protectionism could hurt growth severely, they said.

The Geneva-based WTO expects trade in goods to drop 10 percent this year, the most in more than six decades, after forecasting a 9 percent contraction in March. Trade grew 6 percent in 2007.

The collapse in global trade deepened in the first quarter, with exports and imports slumping by more than 10 percent in the Group of Seven nations, the Organization for Economic Cooperation and Development said last week fast cash personal loans.

Contraction Slowing

“We see some slowing down of this deep contraction, especially in Asia, which unsurprisingly will probably be the place in the world economy that will bottom out first and probably more vigorously than average,” Lamy said. “But I remain very cautious as we’re still not out of the woods.”

APEC members, including the U.S., China, Russia and Japan, account for about 44 percent of world trade and 54 percent of global gross domestic product, according to the organization’s Web site.

Ministers agreed that “while populist measures for protectionism were greater during these difficult times, the political resolve to resist them must be even stronger,” according to the statement. “Although the Asia-Pacific region was still relatively open, some trade-restrictive measures had emerged since the beginning of the economic crisis.”

Buy American

The European Union and Canada have led international efforts to get the U.S. Congress to scale back a provision in its $787 billion stimulus bill that said all the steel and manufactured goods bought with that money had to be made in America. Congress later agreed to soften that provision, saying it would be applied in a way that complies with U.S. international obligations.

“We do not believe that the ‘Buy American’ provision as included in our stimulus bill violates that pledge,” U.S. Trade Representative Ron Kirk said in Singapore today. “It expressly states that the ‘Buy American’ provision will be implemented in a manner wholly consistent not only under our obligations to the WTO but our obligations under any of our existing” free trade agreements, he said.

The Doha Round began in 2001 with a focus on dismantling obstacles to trade for poor nations by striking an accord that will cut agriculture subsidies and tariffs on industrial goods. Discussions have been dogged by disagreements over issues including how much the U.S. and the European Union should reduce aid to their farmers and advanced developing countries such as India, China and South Africa should lower tariffs.

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The Bank of Canada will probably keep its benchmark interest rate at a record low today, and may say the strengthening Canadian dollar threatens a recovery that has been stronger than policy makers expected.

The target rate for overnight loans between commercial banks will stay at 0.25 percent in a decision due at 9 a.m. New York time, said all 23 economists surveyed by Bloomberg News. The central bank will probably reiterate a plan to keep that rate unchanged through June 2010, economists said.

“There is room to bring in a slightly more optimistic tone, but caution is the overarching theme,” said Stewart Hall, an economist at HSBC Securities in Toronto. “There is no interest in withdrawing stimulus anytime soon,” he said, because “there are gobs of excess capacity not only in the Canadian economy but the U.S. economy.”

Governor Mark Carney predicted in April the economy will shrink 3 percent this year, the most since 1933 during the Great Depression, and recent figures suggest the economy may soon expand again.

The economy will grow at a 1 percent annualized pace this quarter, said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, compared with the central bank’s April prediction of a 1 percent contraction. The median estimate of economists surveyed by Bloomberg is for a 0.5 percent expansion.

Economists surveyed by Bloomberg predict the economy will shrink by 2.4 percent this year, less than the 3 percent the Bank of Canada forecast last quarter.

Stronger-Than-Expected Data

Reports this month showed employment fell by less than economists expected, and the economy posted larger-than-expected gains in building permits, business spending and housing starts.

A year ago, the central bank’s benchmark interest rate was 3 percent, and the bank said the economy would grow 2.3 percent in 2009. Carney cut his forecast three times as the recession emerged.

The central bank may also repeat its concern, first stated June 4, that strength in the Canadian dollar could cancel out improvements in financial markets and consumer confidence.

The currency saw its biggest monthly gain in more than 50 years in May. Today, it trades near the level where the bank first noted its concern. That statement helped weaken the currency by as much as 5 percent over the following five weeks, before its recent gains.

Dollar Hits Competitiveness

The stronger currency makes Canada’s factory goods less competitive, in a year where the bankruptcies of General Motors Corp free car insurance quotes. and Chrysler Group LLC shut Canadian plants, dealers and parts suppliers. Factory sales have dropped by 29 percent since last July, and manufacturers fired 221,500 workers in the 12 months through June, an 11 percent drop.

Exports will fall 21 percent this year, the government’s export financing agency said July 9.

“There is still some skepticism in the consumers,” said William Lane, Chief Financial Officer at Imvescor Inc. in Moncton, New Brunswick, which operates restaurant chains including Baton Rouge and Mikes. “Our customers keep coming, but maybe they decide to have a glass of wine instead of a bottle.”

There are clearer signs of a financial-market recovery, meaning Carney probably will repeat he has no plans to use so- called quantitative easing, where the central bank creates new dollars and purchases assets to try to encourage new lending. Bond dealers last week declined to take up all of the central bank’s liquidity offerings for the first time in 43 auctions.

Businesses Optimistic

Canadian businesses are the most optimistic about future sales growth prospects in almost a decade, and obtaining new loans is becoming less difficult, Bank of Canada surveys published July 13 showed.

“We shouldn’t overplay at this stage the green shoots, to use the popular term, and we shouldn’t underestimate the scale of the challenge,” Carney told reporters June 11 in Montreal, referring to the prospects for a global economic recovery.

The central bank’s mandate is setting interest rates to keep inflation at 2 percent annually. It said in April inflation will average negative 0.8 percent this quarter, and not return to target before the second half of 2011. The bank traditionally gives highlights of its updated forecasts in the rate statement, and details its forecasts in the Monetary Policy Report two days later.

“We haven’t shaken off the shackles of the recession yet, so it’s a little bit early to send the all-clear signal,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. “Even if they change the decimal place a little bit, this is still a very serious recession.”

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The U.S. economy shows early signs of emerging from the recession as $787 billion in stimulus lays a foundation for a sustained recovery, said Lawrence Summers, director of the White House’s National Economic Council.

“While employment continues to contract, the available indicators suggest that GDP is on close to a level path with prospects for positive growth to commence during this year,” he said in a speech today in Washington. “Confidence and hope are returning as a program of rebuilding the economy moves forward.”

Summers joined a chorus of Obama administration officials who have tried in recent weeks to counter calls for another round of fiscal stimulus. The former Treasury secretary and Harvard University president said the government is committed to keeping stimulus in place no longer than necessary to revive the economy.

In his speech, Summers predicted unemployment in the U.S. would likely keep rising in coming months, and he didn’t explicitly address the prospect of a second federal effort to stimulate economic growth. He cited an administration study that projected only 10 percent of the job impact from the current stimulus would occur in 2009.

Summers also declined to comment on Federal Reserve policy and he downplayed the near-term threat of inflation. He said the Obama administration would support measures that enhance the “transparency” of the Fed and oppose any effort in Congress to restrict the central bank’s independence.

Job Losses

In his review of the economy, Summers said the spread of joblessness “is obviously a major area of concern.”

“But contrary to a significant amount of commentary, this does not provide a basis for concluding that the Recovery Act is falling short of its goals,” he said. Given lags in spending and hiring, “the peak impact of the stimulus on jobs was expected to be achieved at the end of 2010.”

Jared Bernstein, Vice President Joe Biden’s chief economic adviser, yesterday said, “It’s a good thing that this recovery act is a two-year plan,” adding that this “is not a recession that’s going to be solved in weeks or months no fax needed payday loans.”

Treasury Secretary Timothy Geithner made similar remarks yesterday and said it’s too early to judge whether additional fiscal priming is needed.

Options Open

When asked yesterday about the potential for a second stimulus, White House Press Secretary Robert Gibbs said Obama is leaving his options open.

“He hasn’t ruled anything in, he hasn’t ruled anything out,” Gibbs said.

Summers pointed to progress in the American economy in the past six months, saying business and consumer sentiment has improved. The Reuters/University of Michigan preliminary index of consumer confidence last week fell more than forecast after four months of gains.

“We were at the brink of catastrophe at the beginning of the year but we have walked some substantial distance back from the abyss,” he said. “Substantial progress has been made in rescuing the economy from the risk of economic collapse that looked all too real six months ago.”

The future of U.S. growth will depend on a “more export- oriented and less consumption-oriented” economy, Summers said. U.S. exports in May rose the most since July 2008, while retail sales that same month increased the most since January.

Growth will average 1.5 percent in the July-to-December period, helped by stabilization in consumer spending, which accounts for about 70 percent of the economy, a Bloomberg News survey this month showed.

Nouriel Roubini, the New York University economist who predicted the financial crisis, said yesterday that the U.S. economy may pull out of the recession by the end of the year and a second stimulus would help broaden the recovery. Roubini said in a speech in New York that a spending package may be needed by late 2009 or 2010 totaling as much as $250 billion.

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U.K. manufacturers are freezing workers’ pay on a record scale after the recession throttled factory production, the EEF lobby group said.

Two-thirds of manufacturing companies awarded no wage increases in the second quarter, the most since the EEF started surveys of pay bargaining in 1987. The average raise dropped to 0.7 percent from 0.9 percent in three months through May and will likely keep falling, the group said today in London.

Business Secretary Peter Mandelson said today that manufacturers from steel companies to automakers face “quite a severe recession” and he pledged support to help them “maintain capability.” The economy shrank the most since 1958 in the first quarter and Bank of England Deputy Governor Charles Bean said this week that the recovery may be a “long haul.”

“This unprecedented high percentage of manufacturers freezing pay and the resultant historically low level of average pay settlements are clear signs of the adverse impact that the economic downturn is continuing to have on the manufacturing sector,” EEF Head of Employment Policy David Yeandle said in a statement. “Manufacturers are trying to manage pay far more flexibly that they have done in previous recessions instant payday loans.”

The report also showed that 16 percent of companies have deferred pay settlements, the EEF said. The group surveyed 240 wage agreements covering 55,405 employees.

Manufacturers have also shed staff to weather the production slump. The total of factory workers fell 201,000 from a year earlier to 2.68 million in the three months through May, the lowest since records began in 1978, the Office for National Statistics said on July 15.

Jaguar Jobs

Jaguar Land Rover, the U.K. luxury carmaker owned by Tata Motors Ltd., said on July 15 it plans to eliminate 300 jobs and end production of the Jaguar X-Type model sooner than planned as demand slumps.

The prospect of further job losses is keeping pay down across the economy. Excluding bonuses, earnings rose an annual 2.6 percent in the quarter through May, the least since records began in 2001.

Hays Plc, the U.K.’s largest recruitment company, said July 9 that all staff including executives will endure a pay freeze after the amount of fees it collected declined at a faster pace.

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Singapore’s economy will recover slowly from the global recession and the nation’s currency policy stance remains appropriate to support growth, the central bank said today.

“Given that there remain stresses in the global financial system and job markets in the major economies continue to weaken, the domestic economy is likely to witness slow and uneven growth, rather than sharp and decisive recovery,” Monetary Authority of Singapore Managing Director Heng Swee Keat said in Singapore today.

Singapore’s economy is forecast to contract as much as 6 percent this year as demand for goods and services eases amid the island’s deepest recession since independence 44 years ago. The monetary authority in April said it would adjust the trading range for the Singapore dollar, a move economists say effectively devalued the currency.

The government said this week economic conditions “remain weak,” even after a report showed gross domestic product increased an annualized 20.4 percent last quarter from the previous three months, the first growth in a year. The sustainability of the recovery is “uncertain,” Goh Chok Tong, chairman of the central bank, said in its annual report today.

“Notwithstanding the sharp rebound in the economy in the second quarter, growth remains below trend and inflationary pressures continue to be muted,” Heng said. “We assess that the current policy stance remains appropriate to support the economic recovery and ensure medium-term price stability, which in turn underpins confidence in the Singapore dollar health insurance plans.”

October Review

The Monetary Authority of Singapore is next scheduled to review its policy in October.

The central bank raised its forecast for this year’s inflation today, predicting consumer prices may fall 0.5 percent or rise 0.5 percent, compared with an earlier forecast for a decline of as much as 1 percent. It cited recent developments in global commodity prices for the revision.

Singapore will review governance regulations for local banks and major insurers to focus on their risk management practices, Heng said. Local banks are also conducting more detailed stress tests internally and the results will be used in their capital planning, he said.

The monetary authority plans to implement changes on its regulatory framework over the next two years as global standards are raised, he said. The central bank will maintain a “balanced approach” and will avoid “over-swinging the regulatory pendulum,” Heng said.

The central bank also plans to review its deposit insurance regulation to provide “adequate protection to depositors,” Heng said. Singapore will consider raising the coverage limit for deposit insurance, he told reporters.

The central bank plans to “enhance” a standing facility for financial institutions and accept AAA-rated Singapore-dollar debt as collateral for the facility, which allows the institutions to borrow directly from the central bank, he said.

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