The Monetary Authority of Singapore (MAS) is likely to persist with its “relatively accommodative” monetary policy to avoid derailing the recovery in 2021, says the team at Fitch Solutions.

The belief also comes as MAS, in October 2020, decided to leave its slope, width and mid-point of the S$NEER policy band unchanged, noted the team.

The team adds that it has seen no indication of any change from the Singapore central bank when MAS noted in a separate statement that “the underlying growth momentum will be weak, and the negative output gap will only narrow slowly in the year ahead”.

Furthermore, MAS said that it would “therefore maintain a 0% per annum rate of appreciation of the policy band” and that an “accommodative policy stance will remain appropriate for some time”.

“We share MAS’ assessment that inflation is likely to pick up but remain benign and low in 2021, allowing it to maintain an accommodative monetary policy stance,” it writes.

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“Furthermore, while we expect real GDP growth to rebound beyond trend levels in 2021 to 5.8%, that is due more to the low base effects in 2020 which saw a 5.8% contraction, rather than strong economic activity, and MAS is likely to remain accommodative in order to facilitate the economic recovery,” it adds.

On that, the team has revised its average consumer price inflation (CPI) forecasts for 2021 to 0.5% y-o-y from 1.4% y-o-y previously.

“The revision reflects our view that while inflation is still likely to trend higher and return to positive territory, the extent is likely to be lesser than we previously expected due to even looser labour market conditions.”

“Indeed, unemployment spiked to 3.6% in 3Q2020, the highest level since 2004, from 2.8% in 2Q2020 and inflation averaged just 0.2% y-o-y in 2020 as a whole,” it notes.

MAS and the Ministry of Trade and Industry announced in January that they forecast CPI to come in between -0.5% and 0.5% in 2021, citing the large output gaps in trading partners as a key factor holding back higher inflation.

“Certain sectors are likely to remain under heavy pressure, especially travel and related sectors as we believe most travel restrictions are unlikely to be lifted until later in 2021 and this will continue to pose a drag on the economy. To be sure, Ravi Menon, Managing Director of MAS estimates these sectors account for between 10% to 20% of the economy,” it adds.