Will 16 months of uninterrupted deflation prompt another MAS easing?

Inflation won’t pick up in coming months.

Analysts are divided on whether or not the Monetary Authority of Singapore (MAS) will ease policy to counter 16 months of continuous negative inflation.

“With a series of disappointing economic data released since the start of 2016 in Singapore, the market is increasingly hoping for the MAS to provide another round of easing stimulus in their upcoming April policy meeting. However, we are still maintaining our view that MAS will keep the April monetary policy unchanged,” UOB said in a report.

UOB noted that policy will not be eased because although the headline inflation forecast has been trimmed, the core inflation outlook remains intact. Moreover, Singapore is not in recession.

“We think that the chance of such a move remains small, as it was only done during economic recessions in the past. It will provide too strong a signal where market thinks that policymakers are pessimistic about aggregate demand growth going forward, and such pessimism may self-perpetuate and hit consumption and investment demand,” UOB noted.

However, Citi noted that the upward trajectory for core inflation in the rest 2016 may be at a lower level than the MAS earlier envisaged.

“Downside risks to our forecasts could increase if measures are announced in tomorrow’s Budget to reduce costs to households through rebates. Together with an unambiguous downshift in the outlook for growth and wages, risk of MAS easing remains significant, in our view. We await the Budget to finalize our MAS call, and would keep an eye on the fiscal impulse, cost reduction measures for businesses, and transfers/rebates for households,” Citi said.