MAS April policy tightening is ‘dovish’ compared to October 2022: RHB

The analyst said this is the end of the tightening cycle.

The central bank has decided that it would not tighten the monetary policy whilst Singapore faces rising inflation before it eases in the second half of the year.

Reacting to this, RHB said this money policy statement was “dovish” compared to the October 2022 statement, including (1) citing that core inflation will end the year “significantly lower” & citing that “there are both upside and downside risks to inflation”, (2) adding that growth will “moderate significantly” in 2023 and (3) mentioning that “the drag on global investment and manufacturing from tighter financial conditions will intensify in the quarters ahead”. 

“This seemingly dovish rhetoric was not seen in October’s statement and highlighted the distinct shift in policymakers’ position from being concerned over high imported inflation,” said RHB.

Hiking cycle is over

The analyst suggested that Singapore’s hiking cycle is over after five consecutive tightening moves since October 2021. 

In the latest MAS statement, policymakers clarified that the last five successive monetary policy tightening moves since October 2021 “have tempered the momentum of price increases” and are still “working through the economy.”

MAS also cited that imported inflation is turning more negative, which means tightening via the S$NEER tool may not be necessary to curb supply-related price pressures. 

Two reasons behind retaining growth

After MAS’ action, RHB said they retain their view for the GDP growth momentum to improve in 2H23 for two key reasons. 

First, they see that most global central banks are nearing the end of their hiking cycle, with markets likely pricing in some rate cuts by the US Federal Reserve in 2024. 

Second, more clarity could be seen in 2H23 on the pace and intensity of China’s reopening efforts. 

There will be a persistent increase in tourism levels and a better export prognosis amidst China reopening.

Looking ahead, RHB downgrades Singapore’s GDP growth to 2.0% (from 3.0%) in 2023 against the lower-than-expected 1Q23 GDP growth print.