Singapore seen holding monetary policy in delicate balancing act

A view of the Monetary Authority of Singapore’s headquarters in Singapore June 28, 2017. Picture taken June 28, 2017. REUTERS/Darren Whiteside/File photo

SINGAPORE  – Singapore is likely to leave monetary policy unchanged this month, as the city-state grapples with a weak economic outlook and persistent price pressures.

All 15 analysts polled by Reuters expect the Monetary Authority of Singapore (MAS) to hold off making changes to its policy in the scheduled review.

“Keeping all three policy parameters unchanged would enable the MAS to balance between being vigilant on upside inflation risks and soft economic growth,” said analysts at DBS.

This month’s MAS decision comes as major central banks elsewhere debate how much more policy tightening might be needed to bring inflation under control amid some signs price pressures have been moderating.

READ: Global central banks unite in ‘higher for longer’ credo

Instead of using interest rates, the MAS manages monetary policy by letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed band, known as the Singapore dollar Nominal Effective Exchange Rate, or S$NEER.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band.

According to DBS’ model, current MAS policy means the S$NEER is appreciating 3 percent a year. Maintaining the current slope would mean the MAS keeps monetary policy tight for longer, they added.

Meanwhile, HSBC analysts don’t expect the MAS to loosen monetary policy until April 2024.

“While inflation has been consistently cooling, it still takes a long time for core to fall back to the MAS’ comfort zone,” analysts at HSBC said.

Alex Holmes, a lead economist at Oxford Economics, expects the MAS to slightly reduce the slope of the policy band in an out-of-cycle move in January 2024.

The central bank is expected to release its next semi-annual monetary policy statement no later than Oct. 13.

Inflation and economy

Singapore has seen inflation ease in recent months, though it still remains above the pre-pandemic average, official data showed.

READ: Singapore August core inflation rises 3.4%, seen easing

Headline and core inflation ranges are officially projected to average 4.5 percent to 5.5 percent and 3.5 percent to 4.5 percent in 2023, respectively.

Meanwhile, the trade-reliant nation’s industrial output and non-oil exports have contracted for an 11th consecutive month, as global demand falters.

Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.

The MAS left monetary policy unchanged in April this year, reflecting growth concerns, having tightened policy at five consecutive reviews prior to that.

It typically holds two policy reviews each year though conducted two additional out-of-cycle decisions last year as consumer prices surged.

In August, Singapore narrowed its 2023 GDP growth forecast to 0.5 percent to 1.5 percent from 0.5 percent to 2.5 percent previously. The economy grew 3.6 percent in 2022.