MAS likely to maintain current policy stance next week given steady core inflation

The Singaporean central bank, Monetary Authority of Singapore, is set to release its semi-annual Monetary Policy Statement (MPS) next week. During that time, the central bank is likely to maintain its present policy stance of a zero percent appreciation of the S$NEER policy path given the stable MAS core inflation, said Scotiabank in a research note. This signifies that there might be no alteration to the policy band’s slope and width, and the level at which it is centred.

In the earlier monetary policy statements, the central bank rarely adjusted the band’s width while re-centring the band only when the prevailing S$NEER level was far away from the mid-point of the band, stated Scotiabank. Significantly, the Singaporean central bank has never adopted a negative slope.

The G-20 nations, during the Hangzhou Summit affirmed their earlier exchange rate commitments that the members would refrain from competitive devaluations and would not target their exchange rates for competitive purposes, noted Scotiabank. It would spur market concerns regarding competitive devaluations if the monetary authority decides to re-centre the S$NEER policy bank downwards at the prevailing level of the S$NEER next week.

The central bank is anticipated to save the policy room for increasing external uncertainty in the coming months. The Italian constitutional referendum, which will take pace of 4 December, might weaken the EUR and the emerging market Asian currencies including the SGD if the result in “No” as it might result in Prime Minister Matteo Renzi resigning. The results of a hard Brexit unfolding in the future might ignite worries regarding risky assets such as emerging market Asian currencies. Moreover, the market would remain cautious regarding the U.S. presidential election likely ECB tapering, according to Scotiabank.