Another tightening or status quo? What to expect from MAS’ April MPC meeting

Some experts predict a further increase in the slope to 2.0%.

Experts are divided on what to expect from the Monetary Policy Committee (MPC) meeting of the central bank in April.

Barnabas Gan, senior economist of RHB, believes that the Monetary Authority of Singapore (MAS) will tighten the policy further in April by increasing the slope of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) path to 2.0% from the current 1.5%, whilst while keeping the width and the level of which it is centred unchanged. 

Gan said the further tightening is likely due to three reasons: S$NEER has appreciated to above 1.0% above the midpoint; inflation remains elevated; and higher rates are still expected in
developed economies.

“The question is not whether MAS will tighten policy but what tools will be used to tighten Singapore’s monetary conditions. We met with policymakers in March 2023 and sensed that economic conditions remain appropriate for a tighter monetary policy in April 2023,” Gan said.

“We think a tightening in April 2023 via a steepening of the gradient will anchor core inflation to around 2.5% by 4Q23,” Gan said.

Experts at Standard Chartered, on the other hand, expect the MAS to maintain “status quo” in April.

“We maintain our call that the Monetary Authority of Singapore (MAS) will keep policy unchanged in April. Economic activity and inflation have moderated recently and the October tightening was pre-emptive in nature,” said Edward Lee, chief economist, ASEAN and South Asia Standard Chartered Bank (Singapore) Limited.

“The banking-sector crisis in the US and Europe is another reason for a pause to monitor the unprecedented 680bps of FX policy tightening since October 2021,” Lee added.

Lee, however, said that if inflation stays high medium-term, the S$NEER slope may need to be adjusted higher to 2% per annum, similar to the prediction of RHB. 

“The MAS appears to be more focused on near-term inflation, and given the uncertain environment, we think it may wait to calibrate policy settings for the long term. At the same time, we do not expect a dovish pivot from the MAS given upside risks to inflation,” Lee said.

“We also think a recentring is highly unlikely; a re-centring tends to be in response to a more urgent need to tighten monetary policy. But the MAS did not move in January, and data since then has supported a pause,” he added.