Will June’s modest inflation rebound drive MAS to ease policy?

CPI spiked 0.7%, from May’s 1.6% contraction.

The Monetary Authority of Singapore (MAS) faces a conundrum to ease its policy on the Singapore dollar, given the city-state’s rising core inflation, a strengthening nominal effective exchange rate (NEER), and still weak inflation. However, analysts say that MAS will be sticking to its guns come October’s bi-annual meeting.

According to a report by BMI Research, Singapore’s consumer prices saw slightly more modest inflation in June. In line with this, CPI dropped 0.7% YoY, in contrast to a 1.6% contraction in May.

This has fanned flames that Monetary Authority of Singapore (MAS) might again ease its Singapore dollar policy at its bi-annual meeting in October, particularly as the Singapore dollar has performed relatively well in nominal effective exchange rate (NEER) terms.

However, BMI Research is quick to note that as core inflation remains on an upward trend, and consumer prices continue tracking toward modest re-inflation in 2017, the central bank is still more likely to stand pat with its current policy stance.

BMI Research notes that this is in line with MAS managing director Ravi Menon’s statement in late-July that “unless there is a marked deterioration in the global economy or significant shift to the inflation outlook, there is no need to change the monetary policy stance.”