Source: AFP.
Source: AFP.
We expect the Monetary Authority of Singapore (MAS) to keep policy settings unchanged at the next policy review scheduled to happen by 13 October. MAS is unlikely to lead the region amid growing debate over which of the Asian central banks (excluding China) will be the first to ease monetary policy.
The Singapore economy has weakened in tandem with stalling global manufacturing output, and inflation has declined since the last meeting in April. Core inflation, the key gauge that the MAS watches, moderated to 3.4% year-on-year (YoY) in August from its peak of 5.5% in January. The slowdown in global factory output is partly due to the impact of monetary tightening on interest sensitive spending. The weakness also reflects an unwinding of the pandemic-related surge in goods demand (most notably in tech). But the case for manufacturing stabilisation globally is building as tech activity picks up and inventory drag fades.
Source: Bloomberg, Bank of Singapore.
We expect official communications to avoid encouraging the perception of dovishness. The MAS is likely to stress "getting the job done" when it comes to bringing inflation back under control to the historical average of slightly below 2%. It is too soon to ease FX policy as core inflation has moderated more slowly than the MAS had expected. The recent rally in oil and rice prices, a still-tight labour market, and administered price hikes like the increase in public transport fares and a 2024 goods and services tax (GST) hike also makes it tough to be convinced that the disinflation trend will stay intact.
We have been right on our recent MAS policy calls but wrong to anticipate the SGD to gradually strengthen against the USD over the course of this year. The SGD depreciated against the USD year to date, although the bulk of the depreciation reflects more of a strong USD rather than a weak SGD story.
Source: Bloomberg, Bank of Singapore.
In recent months, investors have become more worried about the consequences of US growth being too strong rather than recessionary. The USD has made a comeback lately, as US economic data outperformed relative to disappointing China and European data until recently.
By contrast, the SGD NEER remains resilient and continues to hover within the upper half of the policy band. Of the top five currencies that likely dominate the SGD basket (i.e USD, CNY, EUR, MYR and JPY), the SGD is flat to slightly weaker against the EUR so far this year but has appreciated against CNY, MYR and JPY. Some reversal of USD strength in 2024 on softer US growth that blunts the Fed’s hawkish bias is possible. But we may need to wait a bit longer before that is clear.
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