Finance & Business World

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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