Why MAS is unlikely to ease policy in the next month

Will it tighten it, then?

According to J.P. Morgan, Singapore's outlook was uncertain early this year as the global economy began 2013 facing several headwinds (including US fiscal drag and slower Chinese growth). 

But, the global economy has weathered these challenges and Singapore’s economy has actually performed well, growing modestly in 1Q and then surging 15.5% (annualized) in 2Q.

Here's more from J.P. Morgan:

Growth has moderated recently and DM and EM economies still face challenges but Singapore’s growth outlook has become more positive while downside risks have dissipated over the year.

At the same time, inflation has eased. Most of the slowdown has been due to housing and certificate of entitlement (COE) costs, but core inflation (ex. accommodation and private transport) has also eased.

However, the labor market, which historically has driven core price pressures, remains tight (COE prices have started to rise again, too). Thus, we expect CPI and core inflation to drift higher, though neither measure is likely to reach the uncomfortably high growth rates of 2011 and 2012. 

Given the improved growth outlook and expectation for price pressures to firm, the MAS has no room to ease next month. 

On the other hand, the global recovery remains fragile and numerous risks remain, so the MAS does not have much room  to tighten policy, either.

Thus, we expect that the MAS will stay on hold next month with a hawkish bias warning that it will be on guard against price pressures that could arise from a tight labor market and an improved growth outlook.