Why MAS is likely to maintain its policy stance in April

USD/SGD to move towards 1.29 by end 2Q14.

According to UOB Economic-Treasury Research, it expects MAS to release its monetary policy statement either on 11 April 2014 (Friday) or 14 April 2014 (Monday).

UOB noted that with a better growth trajectory against a backdrop of higher inflation expectations, MAS is likely to maintain the “modest and gradual appreciation” stance of the SGD NEER, with no change to the steepness of the policy slope, center or width of the policy band. UOB estimates the SGD NEER slope to remain at 2.5%.

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Singapore’s economic growth picked up substantially in the second half of 2013 and ended the year with a 4.1% growth rate. We project GDP to grow 4.3% this year, as better external demand conditions will boost the externally-oriented sectors in the economy.

On prices, although the most recent inflation number (+0.4% in Feb) eased considerably, that was mainly due to the high base in 2013 where high COE premiums peaked just before the MAS introduced motor vehicle financing curbs. 

Together with an expected increase in manpower costs that may pass through to consumer prices, we expect inflationary pressures to remain in the months ahead and headline and core inflation to move higher towards 3.3% and 2.4% respectively.

That said, with the on-going US QE tapering and the more hawkish statements from the recent FOMC regarding the impending increase in US interest rates within six months after the completion of the tapering, our view for the USD/SGD trending higher going into 2014 remains unchanged. We target the USD/SGD to move towards 1.29 by end 2Q2014 and 1.33 by end 2014.