Wednesday, September 19, 2012

QE3 could fuel inflationary pressures in Singapore


SINGAPORE: The latest move by the US Federal Reserve to launch a third round of quantitative easing (QE3) may cause inflation to remain high in Singapore.

The monetary stimulus measure is aimed at reducing mortgages for US home buyers, thereby encouraging spending.

But analysts said the boost in liquidity may push asset prices higher in Asia and makes it difficult to put a lid on inflation.

Asian markets cheered the latest round of monetary stimulus measures by the US Fed.

But QE3 also has its pitfalls for open economies like Singapore.

The commitment by the US Fed to keep interest rates low means Asian interest rates would remain depressed as well.

This will make it harder for some Asian countries like Singapore to curb inflation.

Singapore is already grappling with higher-than-usual inflation of four per cent as it struggles with high transport, accommodation and labour costs in its domestic economy.

OCBC Bank's head of treasury research, Selena Ling, said: "Although we have seen headline inflation (which excludes accommodation and transport costs) coming off, we have also seen the commodity prices starting to tick higher again, especially for oil."

"We don't think we will get a sharp spike in inflation anytime and for the Asian central banks, they are more comfortable with taking a wait-and-see attitude," she added.

Some economists also cautioned that appreciation in the Singapore dollar could hurt competitiveness of local exporters.

The Singapore dollar hit a fresh one-year high versus the US dollar on Friday as global currency markets sold the greenback on expectations of a falling US dollar.

QE3 increases money supply in the US economy and this lowers the value of its currency.

Still, experts said QE3 will boost wealth and confidence across Asia.

Fundsupermart.com's general manager Wong Sui Jau, said: "People will increase their risk appetite towards emerging markets, particularly Asia. In general, asset classes including real estate, equities and even the bond markets should all get pushed up."

Yet, policymakers in the region remain cautious of its impact.

As the US injects liquidity into its mortgage sector, Hong Kong's central bank has cautioned that this money could flow to Asia and "increase the risk of overheating in its asset market".

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
Email: marshe_inc@yahoo.com.sg
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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