Singapore c.bank concerned over inflation

Singapore's central bank on Wednesday said it is increasingly concerned about rising prices, citing a property boom that has prompted commercial banks to lend aggressively to home-owners and real estate developers.
In its annual report, the Monetary Authority of Singapore reiterated its 2007 economic growth forecast of 5-7 percent, which it said would be driven by the transport engineering, biomedical, and services sectors.
With annual inflation at a one-year high, the MAS said it would be vigilant about price pressures and would continue to allow a modest and gradual rise in the Singapore dollar -- its main monetary policy tool -- to temper import costs.
"For the year as a whole, headline CPI (consumer price index) inflation is expected to come within our forecast of 0.5-1.5 percent, albeit at the upper half of that range. MAS will closely monitor the cost and price developments in the economy," MAS Managing Director Heng Swee Keat told a news conference.
The warning comes as the island's markets are riding high.
Singapore's stock market rose to a record high last week and the Singapore dollar hit a 10-year high on Tuesday.

The Singapore dollar was trading at 1.5282 per dollar at 0900 GMT, slightly weaker on the day. The main stock index was down 0.8 percent, in line with a weaker markets in Asia.
Singapore's annual consumer inflation rate hit 1.3 percent in June, a one-year high but still low by regional standards. However, prices for private residential property are at a 10-year high and salaries in sectors such as banking have escalated.
Heng said inflation is forecast to creep up to 1-2 percent next year, adding that the MAS is watching for second-round effects of rising property prices, such as higher rental costs being passed through into the prices of goods and services.
He also noted a "significant exposure" in the banking sector to the property market.
"We watch these developments carefully, in particular the risk of property prices taking momentum of its own," Heng said.
The central bank's warning is not the first sign of alarm.
Three weeks ago, Lee Kuan Yew, a former prime minister who still holds a cabinet job, cautioned that Singapore must not allow prices to rise as high as those in rival Hong Kong.
In a bid to cool the property market, the government last week raised a charge on redevelopments to 70 percent from 50 percent. The news knocked Singapore property stocks lower.
SIGNIFICANT EXPOSURE
Singapore's loan market is dominated by three domestic banks; DBS Group Holdings , United Overseas Bank , and Oversea-Chinese Banking Corp. .
"The banking sector's exposure to property and construction sectors, as well as the housing loans, is significant. We will be watching developments in the market very carefully," Heng said.
Citigroup said in a recent note to investors that about 26-28 percent of loans by Singapore banks were property-related, below a 35 percent limit set by MAS.
OCBC said it was in compliance with the limit but declined to comment further. DBS and UOB declined to comment.
In a broader context, Heng said Singapore was not immune to the possible spillover from the U.S. subprime mortgage sector, which has sent shivers through credit markets globally.
Singapore's economy grew at a higher-than-expected annualised rate of 12.8 percent in the second quarter and Heng said he expected growth momentum to continue if external conditions remained positive.
After the latest figures, economists raised their full-year forecasts. The government is seen following suit, by lifting its forecast of 5-7 percent closer to last year's 7.9 percent.
While Singapore's trade-dependent economy is benefiting from demand for oil rigs and pharmaceuticals, the MAS warned that information technology, a pillar of manufacturing, remained under pressure and was not expected to recover until later in the year. (Additional reporting by Koh Gui Qing and Saeed Azhar)