View Change April 05, 2019 / 06:16 am UTC

View Change: Monetary Authority of Singapore to Delay Further Tightening

By Jeff Ng

The likelihood of the Monetary Authority of Singapore (MAS) delaying any changes to its monetary policy has risen in recent weeks. We now expect a wait-and-see stance until October 2019, as it seeks more data points on domestic inflation and on global growth/trade trends.

We previously flagged that the MAS will look to tighten one last time by slightly increasing the slope of the Singapore Dollar Nominal Effective Exchange Rate (SGD NEER). This makes the SGD appreciate relative to other currencies, keeping imported inflation and import costs low. 

However, we now see the MAS maintaining current policy settings until October. This is based on our recently-updated view that the Fed will maintain policy rates instead of hiking further. Many central banks—including India and New Zealand in Asia—have turned dovish as well.

MAS may wait six more months to see how global trade trends turn out. We currently expect a weak quarter of GDP growth in Q1 due to China’s slowdown, the impact of the Lunar New Year holiday and trade policy uncertainties between the U.S. and China. 

At the same time, some government initiatives will help to push core inflation temporarily downwards. These have little impact on underlying inflation though, which in our view remains a pressure point. The Merdeka Generation Package is similar to the Pioneer Generation Package announced in 2015, and will likely dampen health inflation in the coming months. Similarly, we expect restructuring in the electricity market to push electricity prices downwards.

Even if MAS maintains policy settings for now, SGD may remain an outperformer with limited upside. This is due to its continued (modest) appreciation stance, as global central banks (including the Fed) become more dovish. 

Figure 1: Core Inflation (% y/y)

Source: CEIC, Continuum Economics

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Analyst Certification
I, Jeff Ng, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.