MAS to keep policy stance even as headline inflation bleeds red

Deflation dynamics are different this time.

The Monetary Authority of Singapore is unlikely to change its monetary policy even though headline inflation has been in the red for seven straight months.

Although this is the longest stretch of deflation since the Global Financial Crisis, analysts note that the headline was figure was dragged by government-imposed administrative policies.

“We believe sequential inflation will pick up slightly in the coming months and lift core back into the MAS's forecast range of 0.5-1.5%, thereby obviating the need for further changes to the SGDNEER band,” said HSBC Economist Joseph Incalcaterra.

UOB’s Francis Tan concurred and said that the current stretch of “deflation” is widely different from previous deflationary episodes.

"We will like to note that downward pressure on both headline and core inflation over the past seven months was due mainly to administrative measures from the government. As such our opinion remains that the MAS will likely maintain their current monetary stance of a “modest and gradual appreciation” of the SGD NEER unchanged at our estimated 1.0% pa rate in the next policy meeting in October, and there should be no pressure in further easing of the appreciation rate,” he said.