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Singapore set to keep monetary policy tight, may ease in October

Bloomberg
Bloomberg • 3 min read
Singapore set to keep monetary policy tight, may ease in October
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Singapore’s central bank will likely maintain tight monetary policy settings for a fourth straight time as inflation remains elevated though an easing is widely expected later this year.

All 20 economists surveyed by Bloomberg forecast the Monetary Authority of Singapore, which uses the exchange rate rather than interest rates to stabilize prices, will keep its overall policy settings on April 12. The decision is expected to come at the same time as the release of advance estimates for the city-state’s first-quarter gross domestic product.

The tone of MAS’s statement will likely stay relatively unchanged at the second of its four-times-a-year decision, according to 10 of 14 economists who responded to the question. Three predict that policymakers will relay a hawkish bias while Bank of America anticipates them to be less so.

The monetary authority tightened five times since October 2021 before opting to pause in 2023. Since its last decision in January, data showed core inflation quickened. That came days after remarks by MAS Deputy Managing Director Edward Robinson that the current policy setting keeps the currency band on an “appropriately restrictive posture to ensure that core inflation declines to 2% by early 2025.” 

Bank of America foresees that the MAS will dial down its hawkish tone from January.

“As such, MAS might express greater conviction for further disinflation through 2025 by acknowledging that some domestic cost pressures have started to ease,” the bank’s economists wrote. At the same time, it’s “likely to remain vigilant to inflation risks, including wage-price spiral given still tight labor market conditions and de-anchoring of expectations.”

See also: Singapore keeps 2024 GDP growth forecast at 1% to 3%; expects gradual manufacturing and trade recovery

The latest inflation report for February showed the core gauge - which excludes costs of accommodation and private road transport - accelerated to 3.6%, faster than the forecast 3.4% gain. Data for March is due on April 23.

Price pressures will remain intact in March too on the back of “surging demand in the services sector tied to the recent string of concerts by Taylor Swift,” said Nicholas Mapa, a senior economist at ING Groep NV.

While MAS doesn’t have an explicit inflation target, it has concluded that a core inflation rate of just under 2% on average “is consistent with overall price stability in the economy.” 

See also: Another possible delisting hastens calls for SGX revival

Singapore’s economy ended 2023 on a firm footing with momentum likely sustaining in the first three months of this year, helped partly by big ticket concerts which boosted tourism. British rock band Coldplay and American pop star Swift each did six-night shows in the city-state.

Going forward, Singapore faces headwinds from weaker global demand as prior monetary tightening gains traction. A median forecast in Bloomberg survey shows GDP expansion accelerated to 3% in January-March from a year ago. The on-quarter pace likely halved to 0.6%.

What else to watch out for in the MAS statement:

Economists expect core inflation this year to ease a tad to 3.05% and then to 1.95% in 2025
Current slope of the currency band was seen at 1.50%, according to the median of 13 respondents, with the highest estimate at 2.0%
Majority of nine economists who see the MAS easing as its next move expect it to happen at the October review

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