The Singapore government has cut its 2014 CPI-All Items inflation forecast to average 1.5-2.5 percent amid lower car prices and housing costs expected for the second half of the year.

Chairman of the Monetary Authority of Singapore (MAS) Tharman Shanmugaratnam, who is also Deputy Prime Minister and Minister of Finance, announced the cut in his message in the annual report 2013/2014 published by MAS on July 24.

However, with domestic cost pressures remaining the primary source of inflation, the government reiterated that core inflation (which strips out accommodation and private road transport costs) will remain firm at 2-3 percent in 2014 and during this period of economic restructuring.

“The MAS will remain vigilant in ensuring that cost pressures are contained in the medium term,” he said, adding “Our monetary policy stance has been consistent with that aim”.

While almost all analysts expect MAS to keep its “modest and gradual” Singapore dollar NEER (nominal effective exchange rate) appreciation stance, some economists predicted “small” possibility in changing the monetary policy at MAS next meeting in October.

“The Business Times” daily quoted Dr. Chua Hak Bin from Bank of America Merill Lynch's (BAML) as saying that slowing GDP growth may prompt a shift in view. GDP growth expanded just 2.1 percent in Q2, as restructuring hurt both manufacturing and services.

“In our view, there is now a small probability of MAS shifting gears to a neutral bias, if the downturn intensifies and core inflation slips below 2 percent,” he said.

The MAS Chairman’s message added that with the gradual improvement in the global economic environment, Singapore economy will see a growth of 2-4 percent, compared to 3.9 percent in 2013 and 2.5 percent in 2012.-VNA