Time to loosen up: MAS set to ease monetary policy in April, says Credit Suisse

On back of extremely weak headline inflation.

Disinflation concerns and subdued GDP growth could prompt the Monetary Authority of Singapore (MAS) to ease its monetary policy in its upcoming policy meeting in April.

According to a report by Credit Suisse, headline inflation is expected to average a paltry 0.1% in 2015, while GDP growth outlook remains soft amidst weak domestic demand and lacklustre global growth.

“We think a combination of a much weaker than anticipated outlook for headline inflation, coupled with more subdued GDP growth could have made the central bank more concerned, and provided some room for it to change its current stance. This is why we think easing is likely despite the tight labour market,” said Credit Suisse analyst Michael Wan.

“In fact, in recent weeks, the MAS has already allowed the SGD NEER to trade below the mid-point of the band, which could signal that central bank has implicitly allowed a slower pace of exchange rate appreciation. Historically, we believe the MAS does not like the NEER to trade below the mid-point for a sustained period unless there is an external shock,” he added.

Wan expects the MAS to reduce the slope of the exchange rate band, with a shift to a zero pace of appreciation being the next most likely outcome.

“As such, we expect the MAS to allow the NEER to fall towards the bottom end of its policy band for next few months as inflation dips, before guiding the NEER gradually back to the midpoint by the end of the year,” he noted.