Singapore’s economy grew at the fastest pace in three quarters, an expansion that prompted the central bank to tighten its monetary policy. The country’s currency rose to a record.
Gross domestic product rose at an annual rate of 23.5% last quarter from the previous three months, when it climbed 3.9%, the trade ministry said in a statement today. That compares with the 11.4% median estimate in a Bloomberg News survey of 14 economists. The central bank said separately it will re-center the exchange rate policy band upwards.
Asian central banks are raising interest rates, removing excess cash from their financial systems or allowing their currencies to appreciate as rising oil and commodity prices fuel inflation. The Singapore dollar rose to its highest level on record as the economy extends its expansion after last year’s unprecedented growth rate.
“There is little doubt that the economy is doing well and some sectors are facing higher costs,” Alvin Liew, a Singapore-based economist at Standard Chartered Plc, said before today’s statements. “The stronger currency is to deal with imported inflation.”
The Singapore dollar has climbed about 10% against the US currency in the past year, the best performer in Asia excluding Japan. It traded at $1.2514 versus the US dollar as of 8:07 a.m. today.
The Monetary Authority of Singapore revalued the currency in April 2010 and said in October it would steepen and widen the currency’s trading band while seeking a modest and gradual appreciation. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band.
Inflation Outlook
“Economic activity is likely to be sustained at a high level for the rest of the year, even as the underlying growth momentum moderates,” the central bank said today. “Domestic cost and price pressures will remain firm.”
Half of the 20 analysts surveyed by Bloomberg predicted the central bank would re-center the band in which the dollar is allowed to trade. Four forecast faster gains in the currency to be achieved through a steepening of the band, while the remaining six foresaw no change from the stance adopted at the last policy meeting. The next review is in October.
Singapore’s consumer prices gained 5% or more in the first two months of 2011. The government expects inflation to moderate and average 3% to 4% this year, “assuming no further escalation in global oil prices,” Trade Minister Lim Hng Kiang said in parliament this week.
The government forecasts economic growth of 4% to 6% this year. GDP increased 8.5% in the first quarter from a year earlier, compared with the median estimate for a 5.8% gain in the Bloomberg News survey.
Elections Due
The government is distributing cash to its citizens and giving out utility rebates to limit the effect of inflation ahead of general elections that must be held by February 2012. Prime Minister Lee Hsien Loong’s ruling People’s Action Party has unveiled new candidates to compete in the upcoming polls.
Policy makers introduced more measures in January to curb property speculation after private home prices and transactions reached records. Attempts to rein in prices had started in 2009.
Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, has remained vulnerable to fluctuations in overseas demand for manufactured goods even after the government boosted financial services and tourism.
Non-oil shipments may increase 8% to 10% in 2011, after growing 22.8% last year, according to government predictions.
Casinos, Conventions
Manufacturing, which accounts for about a quarter of the economy, rose 13.9% from a year earlier last quarter, after gaining 25.5% in the three months through December.
Tourists are arriving in Singapore in record numbers, benefiting companies from Singapore Airlines to hotel operator Shangri-La Asia, as the island plays host to more conventions and exhibitions. The city state’s two casinos run by Genting Singapore Plc and Las Vegas Sands Corp. are also luring gamblers from around the region.
The island’s services industry grew 7.2% last quarter from a year earlier, after climbing 8.8% in the previous three months. The construction industry grew 2.6%, compared with a 2% decline in the fourth quarter.
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