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Monetary Authority of Singapore likely to leave policy settings unchanged for rest of this year, says ANZ Research

The Monetary Authority of Singapore (MAS) is expected to leave policy settings unchanged for the rest of this year, with yet another month of weaker than expected inflation numbers, according to the latest report from ANZ Research.

Despite still firm labour market conditions and the recent run-up in oil prices, there is little likelihood of the MAS Core Inflation pushing higher anytime soon. Singapore’s CPI data for March came in below expectations on both the headline and core measures.

The CPI-All Items inflation edged up to 0.6 percent y/y but fell short of market and our expectations. The miss relative to our forecast was due to softer prices across several components, where the usual post Chinese New Year bounce failed to materialise.

This resulted in the MAS Core Inflation edging slightly lower than the previous month to 1.4 percent y/y in March. The impact of the Open Electricity Market (OEM), which officially launched on November 1, 2018 and saw more areas covered on March 1, had a much bigger impact in pushing down electricity prices than thought.

By ANZ’s estimate, the OEM alone is responsible for pushing down the MAS Core Inflation by 0.2ppts. With the last remaining zone to be covered from May 1, there will be further declines in electricity prices on top of the fall in regulated prices. At this stage, higher near-term prices are only coming from food, petrol, and COE car prices.

"Firm labour market conditions will help support wage growth. But this is unlikely to create inflationary pressures at present. We expect to see core inflation edging slightly lower in the coming months and remain comfortably within the MAS’s 1-2 percent forecast range this year," ANZ Research added in its comments.

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