SYDNEY - Singapore’s central bank will likely keep its tight monetary policy settings for a third straight review while retaining its sharp focus on still-elevated inflation.
All 19 economists surveyed by Bloomberg expect the Monetary Authority of Singapore (MAS), which uses the exchange rate rather than interest rates to stabilise prices, to maintain its overall policy settings on Jan 29. The central bank tightened five times since October 2021 before opting to pause in 2023.
The MAS is expected to keep its statement relatively unchanged at the first of its four-times-a-year decision, according to nine of 13 economists who responded to the question. Three, including from the Bank of America and Barclays, expect the tone to be hawkish, while one from Oxford Economics was alone in predicting a dovish tilt.
This will be the first policy statement under new MAS managing director Chia Der Jiun and since it shifted to a quarterly schedule from biannual reviews previously. The Bloomberg survey was conducted before Singapore reported on Jan 23 that core inflation quickened to 3.3 per cent in December.
Since the MAS’ last decision in October, Singapore’s economy has shown signs of resilience, with the labour market remaining relatively tight and private-home price growth strong. Global financial conditions have eased too.
Even so, the central bank’s preferred core gauge – which includes food and fuel prices and excludes accommodation and private transport – accelerated to a pace that surpassed all analyst estimates, driven by higher costs of services and utilities. A scheduled increase in the goods and services tax (GST) from 8 per cent to 9 per cent on Jan 1 also bears noting.
Further underpinning domestic price pressures in Singapore, gross domestic product expanded by a seasonally adjusted 1.7 per cent in the fourth quarter from the prior three months, following a 1.3 per cent expansion in the July-September period. Singapore avoided a recession in 2023 and grew at a faster-than-expected 1.2 per cent.
“Given the need to manage inflation expectations, we see little reason for the MAS to relax its hawkish tone,” Barclays’ Brian Tan and Audrey Ong wrote in a note, referring to the GST hike. “We believe the likelihood of FX policy easing this year is lower than most market participants think – our base case is for no adjustments through 2025.”
According to Bloomberg economist Tamara Mast Henderson, the MAS in October expected core inflation, excluding the impact of the GST hike, to moderate in 2024 to 1.5 per cent to 2.5 per cent – which is where it would probably prefer the gauge to settle. She fears the measure will rise in 2024 as disinflation from the base effect starts to fade and following the GST increase.
That explains why some economists expect a hawkish stance in January, while some – including from UOB – that had anticipated the MAS to start easing in April see rising risk that the reversal of monetary policy tightening may be delayed.
“We see risks of core inflation staying sticky above 2 per cent even through 2025,” said Bank of America’s Asia and Asean economist Kai Wei Ang in a note to clients. “As such, a steeper slope may be needed to deliver more durable tightening.” BLOOMBERG
