More property cooling measures incoming: Deutsche Bank

Singapore badly wants to subdue inflation.

A new Deutsche Bank report explains that the Singapore government, keen on keeping inflation under control, will be eyeing even more property cooling measures, in conjunction with an unchanged monetary policy. But the bank signalled doubt at the impact of these measures because Singapore is still swayed heavily by macroeconomic winds in spite of forceful domestic policy efforts.

Here's more from Deustche Bank:

Singapore’s growth depends largely on external demand, which has been weak for a while, affecting exports and production, but the economy’s fundamentals remain strong, thanks to low interest rates supporting thriving domestic demand. If anything, some slowdown in growth is desirable as that could relieve some cost pressure on the economy.

With this backdrop, we don’t expect the authorities to have much desire to support the economy. Interestingly, the thrust of policy measures lately has been in the opposite direction, with the Monetary Authority of Singapore (MAS) steepening the slope on the nominal effective exchange rate (NEER) appreciation last year and a series of macro prudential measures being put in place since 2010 to cool the property market.

As long as interest rates remain at their floor and global liquidity abundant, there will be only limited traction from steps to cool the property market. As cost of financing remains cheap, money will find its way to the property market and associated activities.

The curious characteristic of the Singaporean economy is that it is compelled to maintain a policy of exchange rate appreciation to fight tradable price inflation, which in turn brings in flows and keeps rates low, and consequently fuels non-tradable inflation (e.g. rent and transportation).

The authorities have taken an array of measures to stem the latter, but the impact has been limited so far. We think the MAS will likely maintain an unchanged stance during its policy review later this month (as it would not want to cause a rise in inflation expectations through the tradable channel when non-tradable inflation is so high), and more property cooling measures could well be in the pipeline. But we are not convinced if this policy mix will bring about the desired result. Like it or not, Singapore’s fortunes will continue to remain tied to the vagaries of global macro-economy and developed country monetary policy for years to come.