Why MAS is expected to keep its current monetary policy

Despite the pick-up in growth and inflation indicators.

Ahead of the Monetary Authority of Singapore's announcement, UOB believes that it will keep the current policy of a zero appreciation of the SGD NEER slope unchanged.

In a flash note, UOB said the maintaining of the current policy will come whilst MAS keeps the midpoint and bandwidth of the policy band unchanged as well.

To recall, growth and inflation indicators have picked up lately, prompting the market to bid up the SGD NEER, anticipating a tightening move from the MAS. The SGD NEER has been trading above its midpoint 93% of the time since the start of 2017.

"However, we think that it is a tad too early for the MAS to adopt such hawkish attitudes. This is because domestic consumption contracted in 4Q 2016, driven mainly by the weak labour market conditions, essentially putting a lid on runaway prices," noted UOB.

Here's more from UOB:

We think that the MAS will utilise forward guidance in their April policy statement to ease the market into a potential 0.5% appreciation of the SGD NEER slope in the next meeting in October 2017.

As such, we expect the USD/SGD to trade at a slightly lower trajectory to reach 1.46 by end 2017, rather than our earlier forecast of 1.48. The 3m SIBOR is also expected to reach 1.45% by end-2017.