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The Monetary Authority of Singapore (MAS) is expected to stand pat at next week’s MPS (Monetary Policy Statement), although the odds only marginally favour this base case scenario, according to the latest research report from OCBC Bank.
The alternate scenario is for another slope steepening although this will likely be another non-hawkish tightening. Anecdotally, markets are already loaded (but not seemingly excitable) for next week’s MPS and expect external drivers to impart more bias on local FX/rates instead.
Macroeconomic arguments (and uncertainties) would imply a wait-and-see stance till the April 2019 MPS before effecting another slope steepening. Since the April MPS, indicators of economic activity for Singapore in aggregate we feel have progressed largely as expected, if not marginally better than expected.
On the price front, inflation numbers (headline and core) in the intervening period have largely printed as expected with little in the way of alarming upside surprises. These developments in itself would suggest that macroeconomic indicators have continued to stabilize in the last half a year and would therefore pave the way for a further normalization of the policy gradient next week, the report added.
"However, given the (still) long interval between policy statements and if the MAS deems the costs of a Type II policy miscalculation (of remaining static in October) as significant, the recent stabilization of macroeconomic variables may well afford them the latitude for another slope steepening next week. In this scenario, we would still expect another ‘non-hawkish’ steepening," OCBC Bank commented in the report.
