Tuesday, May 08, 2012

MAS to act decisively to control inflation

The Monetary Authority of Singapore (MAS) should implement policies that react “decisively” to control short-term inflation driven by strong demand. However, the policies should restrain, and not quash price pressures caused by long-term supply constraints, according to a report by The Business Times.

Ong Chong Tee, Deputy Managing Director at MAS, revealed that the challenge for the central bank is to distinguish between the supply and demand drivers of inflation, while staying vigilant to prevent spiralling inflation and its effects.

These are the reasons why the agency tightened its monetary policy last month, he explained during a conference held by the Singapore Management University’s Sim Kee Boon Institute for Financial Economics (SKBI).

“Higher labour costs in the short term due to permanent supply shifts are part and parcel of the market’s equilibrating process to guide the economy to a sustainable growth path,” he noted.

Thus, business cost increases due to less reliance on low-cost foreign workers will be shifted to the prices of services in the short-term.

But if strong demand increases short-term inflationary pressures, MAS will “act decisively” even if this dampens overall economic activity, said Ong. He added that the authority’s latest move was aimed at “keeping the economy on an even keel” with growth of one to three percent in 2012.

Moreover, Ong reiterated the “targeted and incremental” use by MAS of macro-prudential tools to avert the formation of asset price bubbles.

Aimed at specific markets, particularly the property sector, the country’s measures focus on “discouraging short-term speculative activity that can distort underlying prices, while encouraging greater financial prudence among property purchasers,” said Ong.

View the original article here

May 8, 2012 - PropertyGuru.com.sg

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