Will Singapore ease monetary policy amidst subdued inflation levels?

MAS may decrease the SGD NEER policy band to 0.5% from the current 1%.

Against benign inflationary pressures, analysts expect the Monetary Authority of Singapore (MAS) to ease monetary policy in an effort to prop up the slowing economy.

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In August, core inflation hit 0.8% in a similar pace to July although remaining at a three-year low. Similarly, headline inflation only rose slightly to 0.5% from 0.4% in the previous month. This informs expectations by analysts for the central bank to ease policy at its policy meeting by mid-October.

“The fact that core inflation remains persistently below the medium-term historical average of just under 2.0% may persuade MAS to loosen monetary policy in its upcoming policy meeting,” Barnabas Gan, economist at UOB said in a note.

Chua Hak Bin, analyst at Maybank Kim Eng, echoed the sentiment, expecting the MAS to lower the slope of the band. “MAS may reduce the slope slightly rather than to zero, as Singapore likely escaped a technical recession in 3Q19,” he said in a separate note.

From the current 1%, MAS is expected to decrease the annual appreciation pace of the SGD NEER policy band to 0.5%, according to Irvin Seah, senior economist at DBS. “An outsized accumulated surplus of about $15.6b implies ample room for aggressive fiscal support for the economy. We expect a highly expansionary fiscal policy early next year,” Seah added.

Despite heightened economic uncertainties, Singapore is also likely to beat revenue targets given steady collection of revenues during the first five months of the year. Fitch Solutions expects operating revenue to hit $78.92b, considerably higher than the $74.89b estimated by finance minister Heng Swee Keat during his 2018 budget address. The government has already achieved 44% of its targeted revenue for FY2019/20 as of May, collecting cover $32.9b over the five month period.