Wednesday, May 18, 2011

Singapore inflation rate may have peaked, MAS’s Menon says

Singapore’s inflation may have peaked and a stronger currency has helped damp price gains, central bank Managing Director Ravi Menon said.

Gains in consumer prices across Asia as a result of rising commodity prices and capital inflows may be temporary, and policy makers in most of the region’s economies aren’t behind the curve, Menon said in a speech at a conference in the city state today. Still, inflation risks aren’t over yet, he said.

Asian central banks from China to Thailand and India are raising interest rates or allowing their currencies to gain to curb price pressures as oil and food costs rise. The island’s dollar has risen to records after the Monetary Authority of Singapore said April 14 it would allow further appreciation in its third tightening of monetary policy in a year.

“Allowing the Singapore dollar to strengthen has had a dampening effect on inflation, which would otherwise have been much higher,” Menon said. “Headline inflation has probably peaked in Singapore and is expected to average 3 to 4% this year.”

While Asia’s growth has lured investors seeking higher returns in the region’s assets, such inflows are unlikely to persist in similar volumes, Menon said.

“Low interest rates in the advanced economies have prompted global investors to seek higher returns in emerging economies especially in Asia,” he said. “Capital inflows are also unlikely to persist at the volumes seen in the past two years as monetary policy settings in the advanced economies are normalized.”

Publish date:18/05/11

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