SINGAPORE: Singapore’s central bank is expected to maintain monetary policy in the upcoming review on Jan 29, according to a consensus of 13 analysts polled by Reuters.
Despite growing expectations for a potential easing, experts argue that MAS will likely wait for more concrete evidence of a consistent decline in inflation before making any policy adjustments.
HSBC economists noted in a research note, “We do not believe this is the timing for MAS to loosen its monetary policy.”
They emphasised “MAS will need to see more evidence that inflation will consistently decelerate to its comfort zone before making the first easing move,” projecting a possible policy change in April.
Inflation in Singapore stood at 3.2% in November and 3.3% in December, slightly down from the peak of 5.5% at the beginning of 2023. The government’s decision to raise the goods and service tax (GST) from 8% to 9% at the start of 2024 is cited as a contributing factor to potential near-term price volatility.
For 2024, the trade ministry and central bank estimate core inflation to range between 2.5% and 3.5%. OCBC chief economist Selena Ling cautioned that the recent GST hike and other price adjustments “may mean somewhat stickier prices in the near-term.”
Global central banks are grappling with persistent inflation and an uncertain economic outlook, prompting caution in adjusting monetary policy.
DBS analysts noted that central banks, including MAS, are likely to keep interest rates elevated until they are convinced that inflation is on a sustained path towards their targets.
SG economy is on a “gradual yet fragile external-led recovery”
Singapore’s economic growth, often considered a global growth indicator due to its significant international trade, declined from 3.6% in 2022 to 1.2% in 2023. The trade ministry projects a modest growth of 1% to 3% in 2024, citing a “gradual yet fragile external-led recovery.”
However, uncertainties persist, with risk factors including high interest rates in advanced economies, China’s uncertain outlook, and geopolitical tensions.
Prime Minister Lee Hsien Loong acknowledged various global challenges, including conflicts in Israel and Ukraine, tensions in the South China Sea, and climate change, stating that these factors would impact the global economy for years to come.
MAS, which left monetary policy unchanged in April and October 2023, will now announce policy decisions quarterly instead of semi-annually, aiming to enhance communication.
The central bank manages policy by adjusting the Singapore dollar Nominal Effective Exchange Rate (S$NEER) against its main trading partners, using the slope, mid-point, and width of the policy band as levers.
While expectations for policy changes are low among various financial institutions, MAS’s decision will be closely watched, given its role as a “bellwether for global growth.”
/TISG
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