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, which uses the exchange rate rather than interest rates to stabilize 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 Bank of America Corp and Barclays Plc, expect the tone to be hawkish while Oxford Economics was alone in predicting a dovish tilt.
This will be the first policy statement under new Managing Director Chia Der Jiun and since the MAS shifted to a quarterly schedule from biannual reviews previously. The Bloomberg survey was conducted before the city-state reported on Tuesday that core inflation quickened to 3.3% in December.
Singapore Core Inflation is Off its Peak | Yet, it remains elevated and subject to upside risks
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Since the MAS’ last decision in October, Singapore’s economy has shown signs of resilience with the labour market remaining relatively tight and house-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 to 9% from 8% starting Jan 1 also bears noting.
Further underpinning domestic price pressures in the city-state, gross domestic product expanded by a seasonally-adjusted 1.7% in the fourth quarter from the prior three months, following a 1.3% expansion in the July-September period. Singapore avoided a recession in 2023 and grew at faster-than-expected 1.2%.
See also: Singapore's headline inflation rebounds to 3.7% y-o-y; core inflation up to 3.3% y-o-y in December
“Given the need to manage inflation expectations, we see little reason for the MAS to relax its hawkish tone,” Brian Tan and Audrey Ong at Barclays 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.”
The MAS in October expected core inflation, excluding the impact of the increase in the GST, to moderate in 2024 to 1.5%-2.5% — which is where it would probably prefer the gauge to settle, according to Bloomberg economist Tamara Mast Henderson.
She fears the measure will rise this year as disinflation from the base effect starts to fade and following the tax increase.
That explains why some economists expect a hawkish stance this month, while others, including United Overseas Bank U11 that had anticipated the MAS to start easing in April sees rising risk that the reversal of monetary policy tightening may be delayed.
“Given MAS’s pre-emptive stance and with effects of past policy tightening fading, the April meeting could well be “live”, with risk of a 50-bp slope steepening even higher than we thought before,” said Kai Wei Ang, Asia & Asean economist at Bank of America wrote in a note to clients after the December inflation report.
The Singapore dollar remains attractive for positioning for a weaker greenback in 2024, Ang said.
Here’s what else to watch out for in the MAS statement:
Economists expect core inflation this year to ease a tad to 3% and then to 2% by 2025
The current band slope is estimated at 1.50%, according to the median of 15 respondents, with the highest estimate at 2.20%
Seven economists expect the MAS to maintain policy settings in 2024 while eight foresee an easing this year
