SINGAPORE: Depending on which yardstick one uses, Singapore's monetary policy can either be deemed tight enough to tackle soaring prices or so loose that investors will have to endure rampant inflation and low yields for a long time.Going purely by the exchange rate -- which is Singapore's main monetary tool -- policy is tight and the central bank needs to relax a bit, particularly if the economy contracts this quarter to mark a second straight quarter of decline in output. Yet, bond yields are falling and loan growth is climbing, and there are other signs of loose monetary conditions in the Southeast Asian economy that make the inflation hawks uneasy.
Bringing down inflation, which has just dipped from a 26-year high, to a government forecast range of 6-7 per cent for 2008 and to more moderate levels afterward could prove a challenge.
"The overall policy stance, not necessarily the MAS (Monetary Authority of Singapore) exchange rate policy, is too loose to prevent second round inflationary effects," said Robert Prior, an economist with HSBC.
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