Hawkish MAS will keep policy on hold despite intensifying deflation: analysts

Prices will rise thanks to higher wages.

Intensifying deflation will not push the Monetary Authority of Singapore (MAS) to ease its monetary policy again, according to analysts.

HSBC economist Joseph Incalcaterra noted that despite intensifying deflation, the MAS still sounded slightly more hawkish concerning the pass-through of higher wages to consumer prices.

“The wording of today's CPI release reaffirms its view that the pass-through of higher wages to CPI will eventually surface and contribute to inflationary pressures, particularly in the services industries,” he noted.

“The MAS takes a medium-term outlook on price stability. Accordingly, we believe that [these factors] will result in the MAS keeping monetary policy settings on hold, especially seeing that working age population growth in Singapore will slow considerably over the next two years and the government is likely to stand pat with regard to its policy of limiting foreign workers,” Incalcaterra added.

Maybank Kim Eng analysts believe that the somewhat hawkish statement on medium-term inflation outlook seems to signal that further easing might not be on the cards.

“The policy stance could be maintained going into 2016, unless growth surprises significantly on the downside over the next six months. However, this does not preclude the possibility of a policy band widening especially as the US Fed fund rate normalization approaches. The greater volatility in the financial markets that could result could see the MAS widen the band to accommodate greater volatility. However, this should not be seen as an easing move by the MAS but to accommodate two-way moves in the SGD in the face of market turbulence,” they said.