Singapore’s MAS Keeps Policy Settings as Inflation Lingers

(Bloomberg) — Singapore’s central bank kept its monetary policy settings unchanged for a third straight time amid expectations for inflation to ease only later this year — a decision that suggests any easing could be farther down the road.

The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than interest rates, maintained the slope, width, and center of the currency band, it said in a statement Monday. The move will keep the local dollar on an appreciating path to blunt imported price gains.

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“Core inflation is likely to remain elevated in the earlier part of the year, but should decline gradually and step down by” the fourth quarter, before falling further next year, the authority said in the statement. “Lower imported costs and a slower pace of domestic cost increases should underpin the moderating trend in inflation,” it said.

All 19 economists in a Bloomberg survey had predicted the decision — the first under new Managing Director Chia Der Jiun. It’s also the first policy review since MAS decided to revisit monetary settings quarterly instead of twice-a-year previously.

“The overall statement tilts slightly hawkish,” said Khoon Goh, head of Asia research a ANZ Bank. “Certainly nothing in today’s MPS to hint that they are contemplating easing.” Goh added that the US Federal Reserve’s first rate decision of the year this week and US nonfarm payrolls will be the next major drivers for the Singapore dollar in the near-term.

Monday’s decision extends the MAS’s pause from last year after five rounds of tightening between October 2021 and 2022. Since the last review in October, Singapore’s economic growth has shown signs of resilience with the labor market remaining relatively tight and house-price growth strong. Price pressures, however, linger and risks are exacerbated by the conflict in the Middle East that threatens to push up energy costs.

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The MAS’s language on dampening imported inflation and curbing domestic cost pressures indicate “a continued focus on price pressures that suggests the probability of easing this year is lower than many market participants think, in our view,” said Brian Tan, senior regional economist for Asean at Barclays Plc.

While inflation has edged lower for much of the second half of 2023, it has stayed elevated. The central bank’s preferred core inflation gauge – which includes food and fuel prices, and excludes accommodation and private transport — picked up pace in December to 3.3%, exceeding all analysts estimates.

The authority retained its 2024 core inflation projection of 2.5%–3.5%. Excluding the impact of the increase in the goods and services tax rate this year, core inflation is forecast at 1.5%–2.5%. It, however, sees the all-items inflation coming in lower at 2.5%–3.5%, down from the previous range of 3%–4%, amid declines in premiums for car ownership.

MAS also sees the prospects for Singapore’s economy to continue improving in 2024, while retaining its earlier projection for gross domestic product growth of between 1%–3%. 

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The MAS guides the local dollar against a basket of its major trading partners and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of the currency band. It doesn’t disclose details of the basket, the band nor the pace of appreciation or depreciation.

What Bloomberg Economics Says…

“All in all, the signals suggest the MAS will be inclined to keep its policy settings tight at the next meeting in April as well.”

— Tamara Mast Henderson, economist

For the full note, click here

Nirgunan Tiruchelvam, an analyst at Aletheia Capital, said that while the MAS is seeing no urgency for policy easing, if the Fed’s interest rates fall this year then “Singapore will stand out in the region for its exceptional dividend yield.” The nation’s banks and ETFs on the the Straits Times Index pay yields of between 4% to 7%, he added.

Financial markets see a 50% chance of a Fed cut as early as March while traders stepped up bets on the European Central Bank cutting rates in April, taking a dovish message from Christine Lagarde after the central bank stood pat last week.

—With assistance from Abhishek Vishnoi.

(Adds quotes from analysts, chart.)

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