Chart of the Day: What could be MAS’s next move amid financial volatility?

April is getting nearer.

MAS surprised Singaporeans in its decision last month, and everyone is already anticipating the central bank’s next move. According to analysts at DBS, MAS will probably keep its monetary policy setting on hold in the April Monetary Policy Statement (MPS).

The call is a tough one, and is complicated further by the rebasing of the core CPI series. FX strategists at DBS also estimate the currency policy slope to be 0.5%. While it is too soon to judge the accuracy of this call (it is possible the slope is 1.0%), they believe that the MAS would be unwilling to ease to a flat slope in non-recessionary conditions.

As such, a band-widening would be the most likely next move if conditions so warrant. This could occur if there were to be a significant increase financial volatility on the back of developments in Greece and the Eurozone, for example. In the case that growth momentum slows and starts tracking significantly below our forecast of 3.0% (coincidentally also the mid-point of the MTI forecast) and core inflation drifts to the lower end of the MAS forecast window, then DBS believes the central bank could opt to change policy settings in October's MPS.