The Monetary Authority of Singapore (MAS) has maintained its policy stance – in line with expectations from market watchers – at its half-yearly review on Apr 14.

This neutral position is consistent with the policy stance adopted by the central bank in its review done last October. 

What a neutral stance means is that the central bank has made no change to the width of the band in which the Singapore dollar nominal effective exchange rate (S$NEER) is allowed to float.

At the same time, the slope of the band – which indicates its rate of appreciation – and mid-point have been left untouched. With this, it is maintaining a zero percent per annum rate of appreciation of the policy band.

The last time these parameters were tweaked was in March 2020, to help tide the economy through the downturn brought upon by the pandemic.

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MAS’ decision to stay pat comes amid a soft inflation outlook. 

"As core inflation is expected to stay low this year, MAS assesses that an accommodative policy stance remains appropriate," it elaborated in its policy statement.

Core inflation – which gauges price increments to sectors other than accommodation and private transport -  has reversed from -0.2% in 4Q2020 to log a 0% y-o-y increase in between January to February this year.

This reflects the fading disinflationary effects of government subsidies disbursed to healthcare and education services in 1H2020, MAS notes.

Looking ahead, core inflation – which is a gauge considered in MAS’ policy decision – is expected to rise only gradually and come in between 0% - 1% this year.

Meanwhile, headline, or all-items inflation - which measures the total level of inflation in the economy – is tipped to come in between 0.5% - 1.5% in 2021.

This is an improvement from MAS’ previous forecast of a -0.5% to 0.5% range. It follows higher-than-expected increases in private transport and accommodation costs in the first two months of the year.

The central bank is expecting private transport costs to stay resilient, amid better consumer sentiment and reduced Certificate of Entitlement (COE) quotas for motor vehicles.

MAS’ policy stance follows the 0.2% growth in Singapore’s economy in the first quarter of the year.

See: Singapore GDP reverses from contraction to grow 0.2% y-o-y in 1Q21

It is expecting the republic to log a growth rate, that is likely to exceed the upper end of the official 4% to 6% forecast range, barring a setback in the global economy.

“The negative output gap in the economy will narrow through the course of 2021," adds MAS. 

Even so, it says that output is expected to fall below potential in 2021 and core inflation will “remain short of its historical average”, despite being tipped to rise gradually.

Against this backdrop, MAS is looking at “subdued wage growth as the slack in the labour market will take time to be fully absorbed".