Monetary Authority of Singapore tightens policy again in October, likely to tighten further in April 2019

The Monetary Authority of Singapore tightened again in October after tightening in April. This was consistent with expectations. The S$NEER slope rose a bit, which is estimated to be 1 percent pa from 0.5 percent previously, noted ANZ in a research report.

The Monetary Policy Statement released today is more hawkish for three reasons. Firstly, the MAS downplayed the trade tensions. The risk is acknowledged; however, its impacts are not large or apparent enough for MAS to build into their baseline.

Secondly, the Singaporean economy is seen as continuing to perform solidly into next year, stated ANZ. Although the third quarter advance GDP estimate indicated a deceleration in year-on-year terms to 2.6 percent, this was mainly because of base effects. Upward revisions to history signify it was a strong result overall. Even if the fourth quarter GDP growth comes in flat, the whole of 2018 GDP growth figure will come in at 3.3 percent, which would be close to the top of MAS’s 2.5 percent to 3.5 percent forecast range. The MAS projects just a little easing in growth in 2019, and sees a small positive output gap continuing next year.

And thirdly, there is a rise in domestic inflation pressure. According to the central bank, inflation pressures are likely to be modest but continuing pressures are expected from increased global oil and food prices and a rebounding labor market. The MAS core inflation is expected to rise further to about 2 percent by the end of 2018 and the MAS expects it to average 1.5 percent to 2.5 percent next year.

“Our baseline view is for another tightening at the April MPS in 2019. This should see the Singdollar remain supported and outperform the basket currencies, resulting in the S$NEER rising gradually towards the upper bound”, stated ANZ.