Singapore’s central bankers are expected to signal a potential tightening of monetary policy next year, while holding steady for now, amid rising inflation risks from supply-chain disruptions and surging energy prices.

The Monetary Authority of Singapore, which uses a currency band as its main tool rather than interest rates, will signal a more hawkish tone when it releases its twice-yearly policy statement Thursday, according to 14 of 15 economists surveyed by Bloomberg.

An equal number of respondents said they expect the MAS to leave its three currency band settings unchanged for now, before tightening policy at its next decision in April 2022. Only one economist sees the monetary authority raising the slope of its currency band this week by 0.5% from its current zero-appreciation level, which would be a tightening move.

Investors will be sensitive to any MAS comments on the global inflation debate, with energy prices soaring to crisis levels while economic reopening has boosted service-sector costs and wages in some countries. Attention also will focus on how MAS sees global demand faring in coming months as countries boost their vaccination drives and normalize policy.

At the same time, the city-state is still trying to improve its employment situation, even as some of its critical industries, including financial services, continue to thrive.

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“MAS will remain on hold as the economic outlook remains cloudy,” and will normalize policy in April “when the economy is on a stronger footing and closer to being fully reopened,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore. “Core inflation is rising at the fastest pace since mid-2019 on the back of higher food and energy prices, but price pressures are contained by an uneven labour-market recovery and heightened measures.” 

The MAS guides the local dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of a currency band. It doesn’t disclose details of the basket, the band or the pace of appreciation or depreciation.

Singapore’s currency, which strengthened against the U.S. dollar through most of the pandemic last year, has slipped about 2.5% against the greenback since the start of 2021. An unchanged stance would mean the MAS is satisfied with the local dollar’s current path.

What Bloomberg Economics Says...
“The outlook remains robust and inflation is well above the long-term average. We think those considerations will prevail,” with the MAS set to “tighten policy this month, shifting to a modest and gradual appreciation bias in its currency band from a zero slope.”

-Tamara Mast Henderson, Asean Economist

Here’s a look at what’s expected in the central bank’s statement:

Inflation Outlook
Generally subdued price growth has meant central bankers in Singapore and regionally have been more patient than some emerging-market peers, who have already begun tightening policy amid inflation threats and in anticipation of a November announcement that the U.S. Federal Reserve will begin winding down its pandemic-era asset purchases. 

The MAS will offer an update on its 2021 inflation forecasts and likely will provide an estimate for 2022. In their latest projections, MAS officials saw core inflation averaging 0%-1% this year, with overall inflation in a 1%-2% range.

Tightening Signals
The single out-of-consensus call for some tightening Thursday will keep attention focused on the slope of the MAS’s currency band, which currently is flat. The authority also could tighten by re-centring the band higher, which would offset the rare move -- in a March 2020 emergency meeting at the start of the pandemic -- to lower the band’s midpoint.

Fourteen of the 15 analysts surveyed predicted the MAS will strike a more hawkish tone in Thursday’s statement. The same number predict the MAS will wait until its April 2022 decision to tighten policy, using the interim to monitor global developments and any fallout from the Fed’s expected tapering.

Ongoing Recovery
Third-quarter advance estimates of gross domestic product growth, also due Thursday morning, will help determine how far Singapore’s economy remains from its pre-pandemic path.

Latest estimates show the government expects GDP to expand 6%-7% this year after it contracted 5.4% last year, its worst showing since independence in 1965. Analysts see the economy growing 6.5% this year.

While some sectors have thrived amid successive lockdowns, travel and tourism remain hobbled by Singapore’s cautious reopening, with food and beverage outlets particularly hard-hit. The local labor market still faces challenges from the longer-term effects of an aging population, as well as pandemic-era debates around how to adjust foreign-worker levels and how to help businesses transition to a digital economy. 

Photo: Samuel Isaac Chua / The Edge Singapore