IMF Urges Singapore to be More Vigilant against Deflation

It is no secret that Singapore economy is undergoing slow growth, but the assurances by the Monetary Authority of Singapore (MAS) have so far assured investors and consumers alike. With the announcement that there is no consideration of another policy easing by the authorities, the intervention by the International Monetary Fund (IMF) has caught many analysts by surprise.

The visit by IMF over the last few weeks has been keenly followed by economic analysts who wanted to get a more in-depth assessment of the economic situation. After the visit, IMF staff was categorical that while the inflation level was stabilizing the situation was far from ideal.

“MAS decision to ease monetary policy since January 2015 was appropriate in light of sluggish economic growth. So far inflation is on the way to attain stability of under 2% by end of 2017,” the IMF report noted.

“However, there are still concerns in most sectors and the Monetary Authority of Singapore must remain more vigilant than ever before. If need be, there should be further adjustments of the monetary policy settings to arrest the situation” the report recommends.

The report comes in the background of MAS’s revision of its projected growth for 2016 down to 1.8%. This is the slowest rate of growth since 2009 when the country started recovery from the global meltdown. The IMF says the growth rate is set to increase to 2.5% in 2017.

Despite the positive outlook, the falling consumer prices for the 17th straight months in March 2016 highlight the need for more caution on policy settings. The IMF however, defended the country’s decision to increase spending in the 2016 budget due to the rise of near-term risks to growth over the last months.

The assessment report by IMF also had good news with lower energy prices expected to spur private consumption. The government spending has also increased again setting grounds for more recovery while external demand is expected to gradually recover as China and other Asian markets regain their economic momentum.

One of the main takeaways from the IMF report according to analyst is the fact that the government is in control and it is flexible enough to handle emerging challenges. This means the government might after all decide to initiate another period of policy easing considering the IMF has recommended this as an option to reduce the risk of deflation.

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