Inflation unlikely to be a concern for MAS in determining monetary policy

Subdued commodity prices and the government's housing policies have kept Singapore's inflation at sub-zero growth for the 16th consecutive month since February 2015. 2015's average CPI came in at -0.5%, at the lower bound of the -0.5% to 0.5% forecast range by the MAS. The government has since revised down the forecast to -0.1% to 0.0% for 2016.

Singapore's headline inflation rate has continued to print a 16th consecutive month of y/y decline as of February 2015. Nevertheless, there is no risk of a negative core inflation from the fact that the figure has trended higher, rising to 0.5% y/y as of the latest February release. Furthermore the MAS has maintained its core inflation forecast of 0.5%-1.5%.

Low inflation rate and the revision down of the inflation forecast by the government also fuelled expectation of an easing of the monetary policy. That said, Singapore's banking system and services have been resilient during this period of economic restructuring. The economy has also progressed from the earlier scare of a recession, growing a substantial 2.0% y/y in 2015, albeit at the lower end of the 2.0%-4.0% target range of the government.

"As such we see that the inflation rate for 2016 is likely to once again remain in negative territory, averaging around -0.3% y/y. Nevertheless, we do not anticipate another change to the policy band in the year with a reduction in the number of Fed hikes and a recovering SGD," said 4Castweb in a research note.