What’s hindering monetary authority of Singapore from easing?

We are aware that the MAS remains concerned with the tight labour market and wage pressures, which we think is key factor likely to restrain the monetary authority from easing policy decidedly even though core inflation has fallen. We are also cognizant of heavy short SGD positioning and the growing consensus expectation for a MAS policy easing.

In case it is the other way round (any unexpected change in policy frame), we believe re-centering would provide the best outcome for fixed income markets as markets price out uncertainty around 'further' MAS easing.

Singapore's growth slowdown is structural and has had implications for different assets in the past few months, which we believe may have further room to run. There has been the belief that Singapore's potential growth may have declined to 2-3% (5y average: 4.5%, 10y average: 5.6%). Over the medium term, this shift has several implications for SGD assets, in our view.

On the other hand, a move to a zero slope would be the worst outcome for SGD rates across the term structure, as the positive FX carry of past few years disappear. A band widening, in our view, would also result in weakening of the bond curve. Lastly, no policy change, barring a near-term profit taking would result in sustained upward pressure on rates, in our view.