April 27, 2018 / 4:00 AM / 10 months ago

Singapore cbank treading carefully as trade spat poses growth risk - MAS report

* Trade tensions required “measured adjustment” of policy

* Tariffs could hit Singapore firms from exporters to banks

By John Geddie

SINGAPORE, April 27 (Reuters) - Singapore’s central bank said on Friday that escalating trade tensions between the U.S. and China pose a risk to the city-state’s economy and were part of the reason behind its “measured adjustment” to monetary policy at its last meeting.

The Monetary Authority of Singapore (MAS) earlier this month tightened monetary policy for the first time in six years, tweaking one of three variables in its exchange-rate based model.

As well as imposing global tariffs on imported steel and aluminium, the United States has threatened to impose tariffs on up to $150 billion of Chinese imports. Beijing has threatened retaliation against U.S. exports.

Neither Washington nor Beijing have given a hard timeframe for action, however, offering hope that they will be able to reach a compromise that will limit the direct fallout for both sides and any collateral damage for other trade-reliant economies in Asia.

Singapore Prime Minister Lee Hsien Loong has said the spat could have “big, negative impact” on the city-state which is often seen as bellwether for the global economy because its exports equate to around 200 percent of its GDP.

“Risk factors have emerged which could have a bearing on the performance of the domestic economy,” the MAS said in its biannual macroeconomic review.

“Specifically, the imposition of tariff increases by both the U.S. and China, and the threat of further action on a broad range of products, present downside risks to Singapore’s GDP growth.”

Singapore’s GDP growth in 2018 should come in slightly above the middle of the forecast range of 1.5–3.5 percent, the MAS said, adding that the outlook remains positive overall.

Giving the example of the steel industry, the MAS said Singapore could be impacted directly and indirectly by U.S. tariffs. Such tariffs could result in a decline in steel exports, or hit Singapore-based businesses that support steel exporters in other countries such as banks.

Among all the tariffs announced, ones directly targeting China - Singapore’s top trading partner - would have the biggest impact on growth, the MAS added.

It was this uncertainty that prompted a “measured adjustment” to monetary policy earlier this month.

“Sufficient evidence has accumulated after eight consecutive quarters of a neutral policy stance to suggest that a broad range of nominal variables in the economy have begun to normalise. It was therefore appropriate that MAS withdrew some degree of monetary policy accommodation,” MAS said.

“This measured adjustment took into account the expected gradual normalisation of inflation as well as the uncertainty presented by current global trade tensions.”

Analysts are split over whether April’s move is the start of a longer-term tightening of monetary policy. The MAS’ next scheduled policy statement is in October. (Editing by Kim Coghill)

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