(Feb 22): Singapore’s government may have given the central bank a green light to charge ahead with monetary policy tightening this year.

Economists are more confident in their calls that the Monetary Authority of Singapore will exit its neutral stance as soon as the next scheduled decision in April. They’re encouraged after Finance Minister Heng Swee Keat said Monday that the budget position for 2018 will “remain expansionary” as Singapore incurs a small deficit amid greater spending and delayed tax increases.

“The impulse to the economy is going to be quite positive” on top of already bright growth and job-market prospects, said Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch. “This makes us more confident that MAS will exit its neutral policy in April. We still think it will be very gradual.”

The central bank stuck to a neutral stance in its previous October decision, while giving itself room to tighten policy if necessary. The MAS, which uses the exchange rate as its main tool, eased three times between January 2015 and April 2016.

The projected budget deficit for next year also had Credit Suisse Group AG economists affirming their forecasts for the period. While immediate tax hikes were limited in the budget, giving less of a bump to inflation, the economy has been picking up and consumption is well supported, said Michael Wan, a Singapore-based economist at the bank.

Given that the economy is expected to “do quite well this year, we still think the MAS will tighten exchange-rate policy,” probably in October, he said.

Tamara Henderson, Bloomberg Economics says, “Singapore’s expansionary budget for FY2018 adds to reasons why the MAS may tighten monetary policy this year, perhaps as soon as April. The 8.3% increase in expenditures will support consumption and investment. Also, the announcement of tax hikes to come for GST may bring forward household spending.”

Inflation pressures remain muted, with a report on Friday probably showing consumer prices rose 0.4% in January from a year ago, the same pace as in December, according to a Bloomberg survey of economists. The MAS forecasts its core inflation measure, which reached 1.3% in December, will average 1% to 2% this year.

Eclectic Budget
The overall budget was an eclectic mix, with Irvin Seah at DBS Group Holdings calling it a “give and take” document with “some goodies for everyone.”

Fresh taxes -- some delayed -- were a reminder that Singapore will need to find more revenue for increased spending on healthcare, infrastructure and security in the decade ahead. But enhanced tax cuts, as well as a one-time bonus payment and boost to ministries’ spending this year, were enough to juice an economy that was already looking pretty solid after a strong 2017.

“Singapore’s strong budgetary position and a healthy economy has allowed the government to focus on medium to long-term initiatives,” Christian de Guzman, lead sovereign analyst at Moody’s Singapore, said in a research note.

Forward thinking was evident in Singapore’s “tailoring the tax system to incentivize innovation, meet the country’s climate change commitments, and acknowledge the rising proportion of economic activity that falls outside of the traditional tax net,” de Guzman wrote.