Tight labor market preventing a Singapore stimulus response

Central bank has its hands tied even as economy likely contracted in 3Q, notes BBVA.

Singapore’s advance third quarter GDP estimate came out at a -1.5% q/q, seasonally adjusted annualized rate (consensus: -1.6%, BBVA: 0.1%), from an upwardly revised +0.2% outturn in Q2, as weaker external demand weighed on exports.

The Monetary Authority of Singapore (MAS) then surprised markets by maintaining the center and slope of its currency band, which meant no monetary easing. It cited “tightness in the labor market” that is expected to “support slightly stronger wage increases in 2013, which will continue to be passed through to consumer prices" as a reason for keeping monetary policy as ios. 

"The MAS statement echoes the sentiment across much of Asia in which, despite the slowdown, policymakers are reluctant to use room for stimulus given prevailing tight labor market conditions," said BBVA.