Chart of the day: Don’t count on MAS for an easing just yet

Core CPI remains poised to accelerate in 2017.

An easing by the Monetary Authority of Singapore (MAS) may not be on the horizon yet despite the welcome, albeit minor, across-the-board improvement on GDP growth.

According to a report by BNP Paribas, the limited effect since the referendum on global commodity prices as well as BNP Paribas’ house view for their outlook ensures that official core CPI, which excludes accommodation and private road transport and is MAS’s preferred inflation measure, is still on course to pick up to median is 2% YoY in 2017.

“This keeps it in line with the long-run average and thus undermines arguments for a re-centring of the SGD NEER policy band. Consequently, in the absence of a deeper adverse shock to either global or regional growth projections, we expect the MAS to retain their current policy settings in October,” BNP Paribas asserts.

On the other hand, a report by Citi argues that Q2 data does not provide a conclusive case for for downward re-centring in October. Citi argues that with elevated uncertainties and multiple headwinds on the heel of Brexit, Q3 data may prove more critical for the MAS call.

“DPM Tharman noted that while Brexit is not expected to result in a significant reduction in Singapore’s growth in the next few years, there could be a ‘more major impact’ if events in Europe coincide with a sharp slowdown in China and the US,” states Citi.

Other than monthly growth and inflation data, critical data points that could provide a clearer indication on MAS policy action include Q2 jobs market data and revised Q2 GDP. Further, the revised official 2016 GDP forecast range—either to 1-2% or 1.5-2.5%—will signal the degree of official caution on the outlook.