Why it's critical for Singapore to cut rates

Singapore faces the weakest growth and highest inflation in South East Asia, says DBS.

According to DBS Group Researrch, there is scope for the Monetary Authority of Singapore to shift to a more accommodative monetary stance when it meets in October.

Singapore’s 2Q GDP, it said had declined 0.7% q-o-q saar, worse off than consensus estimates for a 0.5% gain but better than the advanced estimate of 1.1% decline.

"The 2Q figure is a sharp pull back compared to the 9.5% growth in the previous quarter. With Europe in recession, US recovery still sluggish and China growth sub-par, our economist sees the Singapore economy heading into choppy waters. He has recently lowered 2012 GDP forecast to 3% from 3.5%," said DBS in a research note.

"This is also a tricky year for policy makers as Singapore faces the weakest growth and highest inflation in South East Asia – i.e. stagflation. Thus, he sees room for the MAS to shift to a more accommodative monetary policy," he added.