Why MAS is likely to leave policy unchanged despite calls for easing

Inflation seen to average 1.8% YoY.

A more subdued growth outlook will likely lead to more calls for the Monetary Authority of Singapore (MAS) to re-centre the policy band lower, but BNP Paribas believes otherwise.

While sympathetic to this stance, the research firm said that it thinks it overlooks the MAS’s mandate to deliver medium-term price stability as a basis for sustainable economic growth.

It takes its cue from the projected path of the MAS’s core CPI gauge in 2017, where it is expected to gradually accelerate toward its long-run average of 1.8% y/y, in part thanks
to expectations of higher global oil prices and a weaker SGD.

"In this context, it is difficult to argue for further easing. Thus, barring a further downward shock to global commodity prices and/or global growth expectations, the MAS will likely leave policy settings unchanged for some time," it said.

BNP Paribas suggested that fiscal expansion is the best course of action.

"Stimulus should stem from fiscal policy. So far, this is occurring via a surge in development spending, boding well for supply-side potential. It might be time to adopt a more consumption supportive stance that erodes the sizeable current fiscal surplus," it said.

Singapore’s advance estimate of Q3 GDP was significantly weaker than consensus.

Manufacturing was the driving force behind the surprise, contracting at a startling 17.4% q/q saar pace. Services also had a rough ride as weak final demand weighed.