3 reasons why MAS to keep policy settings ‘unchanged’

MAS will hold its monetary policy meeting no later than 13 October.

Economists said it is unlikely for the Monetary Authority of Singapore (MAS) to change its policy parameters in October for three reasons.

RHB Senior Economist Barnabas Gan said the resilient GDP growth momentum persisting into 2024 should help keep monetary policy “unchanged.”

“While we expect a rosier economic momentum for the Singapore economy into 2H23, we note that year-on-year declines are still seen in the latest figures, underpinning that a tightening scenario may be premature. Aug NODX contracted 20.1% YoY, a deeper-than-expected fall compared to market consensus of -17.1% YoY. Separately, industrial production plummeted 12.1% YoY in the same month, against Bloomberg’s consensus for a smaller-than-expected decline of 3.1% YoY,” Gan said.

“The consolation is that while we still see YoY contractions in key externally-facing data, the momentum has been picking up since the start of 2H23. Meanwhile, we are seeing a gradual turnaround in the tech cycle, as seen in the bottoming of global semiconductor billings, which should benefit export-oriented ASEAN, including Singapore,” Gan added.

Other reasons why Gan believes MAS will keep its policy unchanged are because inflation pressures have declined and there’s ample room for the S$NEER to move in tandem with future economic pressures. 

“A tweak to Singapore’s monetary policy parameters may be unnecessary, given the ample room for the S$NEER to move with future economic pressures,” Gan said.

Whilst Gan believes MAS will keep its policy parameters unchanged, he said “the prospect of a tightening in the upcoming policy meeting cannot be discounted, although very unlikely.”

“Inflation pressures are heating up given the uptick in global food and oil prices. Singapore remains a small and open economy, thus suggesting that any further exacerbation in commodity price upticks will quickly elevate inflation pressures,” Gan said.

Commenting on the topic, Sim Moh Siong, senior currency strategist at the Bank of Singapore, said it is too soon to ease Singapore’s FX policy given that “core inflation has moderated more slowly than the MAS had expected. “

“The recent rally in oil and rice prices, a the still-tight labour market, administered price hikes like the increase in public transport fares and 2024 Goods and Services Tax (GST) hike also makes it tough to be relaxed that the disinflation trend will stay intact,” Sim said.