MAS likely to keep SGD NEER policy unchanged

On Thursday, the Monetary Authority of Singapore (MAS) is set to release its semi-annual Monetary Policy Statement. The central bank is likely to keep the policy of a moderate and slow increase of the S$NEER policy band, indicating that no changes will be made to the slope and width of the policy band, according to Scotiabank.

The MAS has hardly adjusted the width of the band in the earlier monetary policy statements. Only when the prevailing S$NEER level was not near the mid-point of the band, the central bank has re-centred the band. The S$NEER is expected to be slightly lower than the centre line currently, noted Scotiabank. Moreover, if the central bank continues to be concerned regarding the upside risks to the core inflation, it is likely to take on the policy of a moderate and slow appreciation of the S$NEER policy band, added Scotiabank.

In February, the CPI inflation fell to -0.8% y/y. But MAS core inflation accelerated to 0.5% y/y due to increasing food prices from January’s 0.4%. Market forecast was for 0.3%. The core inflation strips the accommodation and private road transport costs. The central bank has kept its core inflation forecast unchanged at 0.5-1.5% for 2016. According to the central bank’s March statement, it still anticipates core inflation to accelerate slowly during 2016 due to moderating disinflationary effects of budgetary and other one off measures.

Even though  the base scenario is that the central bank will maintain the slope of the S$NEER policy band, it will not be a surprise if the MAS lowers the slope a bit again as it did in October 2015, according to Scotiabank.

“But we believe the MAS will not shift it to zero from current annual rate of appreciation of 1.25% estimated by us”, added Scotiabank.