MAS to flatten $NEER slope in 2020: analyst

The central bank rarely mentioned close monitoring of economic developments.

The Monetary Authority of Singapore (MAS) is expected to further ease monetary policy to a flat slope in early 2020, according to HSBC Global Research.

The report pointed MAS’ dovish caveat in its statement around its 2020 growth projection and its subdued and below-average forecast for core inflation “in the year ahead” as hints towards further easing.

HSBC also noted the central bank’s statement that it “will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly.”

The last time MAS mentioned closely monitoring economic developments and adjusting its policy accordingly occurred on January 2015 when it said that it "stands ready to curb sharp movements in the S$NEER." MAS has eased the monetary policy thrice between January 2015 and April 2016.

In contrast, another analyst report from UOB Global Economics and Markets Research expects MAS to keep its policy parameters unchanged in the next April 2020 meeting, with the possibility for both growth and inflation to pick-up in 2020.

“In addition, there remains to be optimistic signals from pockets in the services cluster, owing to the positive domestic-driven momentum in the modern-services sector and continued growth in the construction sector,” UOB said.

According to UOB, the $NEER has rallied to +1.6% on Monday morning from +1.1% above mid-point last week. HSBC estimated that it rose to 1.55% above the midpoint, from 1.25% on late Friday night. The reports viewed this as a possible reflection of the market expecting a more aggressive MAS easing.

MAS has “slightly” reduced the rate of appreciation of the S$NEER policy band with no change to the width and the level at which it is centred, the first since April 2016. Analyst reports view this as a 50bp slope reduction to 0.5%.