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Singapore to Slow Down Transition to Lower Vehicle Growth Rate to Ease Inflation

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by Ernie B. Calucag

Singapore will slow down its planned cut in vehicle growth rate, the Land Transport Authority (LTA) announced Wednesday, a move expected to ease inflationary pressures in the city state.

The vehicle growth rate, which affects the supply of Certificates of Entitlement (COE), will be lowered from 1.5 per cent per annum to 1 per cent per annum from August 2012.

This will be reduced further to 0.5 per cent per annum from February 2013 to January 2015.

The LTA had originally planned to cut the vehicle growth rate more quickly, from 1.5 per cent to 0.5 per cent per annum, starting August.

The more gradual reduction in vehicle growth rate will mean about 390 more COEs per month – equivalent to about 10 per cent of the current monthly quota – from August 2012 to January 2013.

Additionally, the LTA has also decided to defer around 4,789 remaining COE adjustments for over-projections in 2008/2009 for a year.

They will resume from August 2013 to January 2015.

LTA said the deferment will make available 266 more COEs per month from August 2012 to July 2013.

“These two measures will bring about a smoother transition to a lower vehicle growth rate, as the government continues to manage the growth of the vehicle population at a sustainable pace,” the LTA said.

For a more stable supply of COEs, the number of COEs for the Open Category will gradually shrink.

The contribution rate will shrink from 25 per cent to 20 per cent from August 2012, and to 15 per cent from February 2013.

The LTA said this would return more COEs from de-registered vehicles to their respective categories, with proportionately fewer quotas in the Open Category.

The LTA announced the changes Wednesday after it was tasked by Transport Minister Lui Tuck Yew to explore ways to help overcome the supply crunch which has caused COE premiums to soar recently.

High COE premiums have caused inflation rate in Singapore to accelerate to 5.4 per cent year-on-year last month, up from 5.2 per cent in March.

Private road transport, which includes car prices, rose 8.2 percent during the month. It has a 11.66 per cent weighting in the consumer price index

The Monetary Authority of Singapore (MAS) reiterated its forecast for inflation to “remain elevated over the next few months, before easing gradually” in the second half of 2012.

“Car prices could also increase if CEO premiums rise further in response to tight CEO supply,” the MAS statement said.