3 reasons why MAS will go for a more aggressive policy tightening in October

Experts expect a double-tightening of the Singdollar gradient.

Experts expect the Monetary Authority of Singapore (MAS) to take on a more aggressive policy tightening in October following the uptick in the headline and core inflation in August.

According to RHB, inflation pressures are amongst the reasons why MAS could go for a "double-tightening" move in October, similar to what they did in April.

"Inflation pressures are still perceived to be elevated for the rest of the year. The latest press release by MAS and MTI suggests that 'global inflation is likely to stay elevated in the near term (while) upward pressures on Singapore’s import prices could persist," said RHB.

RHB said MAS could further tighten policy via a “slight” increase of 0.5% in the slope gradient and recentre higher at the prevailing Singapore dollar Nominal Effective Exchange Rate (S$NEER) level while keeping the width of the band unchanged.

According to UOB, the S$NEER is already trading at 1.8%, already near the projected top end of the band.

"An even steeper slope (say, 2.5%) also cannot be ruled out, especially as core inflation accelerates above 5% in August," UOB added.

Initially, RHB expected policymakers to lift the slope gradient while keeping both width and the level at which it is centred unchanged.

Apart from inflationary measures, another reason for MAS to aggressively tighten its policy in October is the limited room for the Signdollar to "strengthen further as compared to when the S$NEER was recentred in April and July 2022."

"At the time of writing, we notice that the S$NEER has appreciated to 1.0% above the S$NEER mid-point," RHB said.

Lastly, RHB noted that the policymakers have removed an important phrase in their report that core inflation will ease towards the end of the year which it said could be a hint that there will be a subtle change in the official outlook of the core inflation.