MAS likely to adopt further easing to a neutral policy by next policy review in April 2020, says ANZ Research

With the Monetary Authority of Singapore (MAS) expecting growth to improve only modestly in 2020 and core inflation not seeing a pick up, further easing to a neutral policy is possible at the next policy review in April 2020, according to the latest report from ANZ research.

The central bank has reduced slightly the slope of the currency band, in line with most consensus estimates, including ANZ’s. It is believed that the pace of S$NEER appreciation is now 0.5 percent pa, from 1 percent pa previously.

Also as widely anticipated, the central bank has kept the centre and the width of the policy band (which ANZ assumed to be +/-2 percent) unchanged.

Even though the MAS did not go all the way to a flat slope (ie neutral policy), the policy statement is cautious, in line with the weaker than expected growth in Q3 2019 although the economy avoided a technical recession, the report added.

Importantly, the central bank said in the policy statement that the output gap has turned slightly negative. USD/SGD broke lower briefly before hovering at 1.37 flat.

"At 1.5 percent above the mid-point of the policy band, we continue to see a downward bias in S$NEER, but the timing will hinge on global risk sentiment and capital flows. The central bank said S$NEER has been fluctuating in the upper half of the policy band, reflecting shifts in global risk sentiment and capital inflows into Singapore," ANZ Research further commnented in the report.

This suggests that SGD is seen as a relatively safe currency and it has benefited from capital inflows amid global risk aversion.