Written by Kok Shin-hui
SINGAPORE (Reuters) – Singapore’s central bank is widely expected to keep monetary policy on hold this month, holding off on easing until there is more evidence that inflation is consistently falling.
All 13 analysts polled by Reuters expect the Monetary Authority of Singapore (MAS) to hold off on policy changes in a review scheduled to be announced on January 29.
“We do not believe now is the time for MAS to ease monetary policy,” HSBC economists said in a research note.
“Ultimately, MAS needs to see more evidence of a consistent slowdown in inflation to its comfort zone before taking the first step in easing,” it said, adding that policy will be eased in April. That’s what I expected.
Inflation in Asia’s financial hub remains sluggish. It was 3.2% in November and 3.3% in December, gradually declining from its peak of 5.5% in early 2023.
In a joint statement in December, the Ministry of Trade and the central bank said prices could remain volatile in the short term due to consumption tax hikes and changes in auto insurance premiums.
The government has increased the Goods and Services Tax (GST) to 9% from 8% in early 2024.
Core inflation is expected to be between 2.5% and 3.5% in 2024, the Trade Ministry and central bank said on Tuesday.
“The recent 1% GST hike and other price adjustments… could lead to some price increases in the short term,” said Selena Lin, chief economist at OCBC.
Major central banks are grappling with persistent inflation on top of a highly uncertain economic outlook and are hesitant to move too quickly to ease monetary policy.
DBS analysts said: “The central bank wants to keep rates higher for a long time until it is confident that inflation is on a sustained path towards its target, countering market impatience to cut rates earlier. I will continue to do so.”
“Slow but fragile recovery”
Singapore is often seen as a bellwether of global growth, as international trade dwarfs the domestic economy.
The economic growth rate plummeted from 3.6% in 2022 to 1.2% in 2023. The Ministry of Trade predicts a growth rate of 1% to 3% in 2024.
Although there are some early signs of what DBS economists call a “slow but fragile externally-led recovery,” the global environment remains uncertain and challenging.
DBS economist Chua Han Teng said risk factors included high interest rates in developed countries, an uncertain outlook for China and geopolitical tensions.
In his New Year’s message, Singapore Prime Minister Lee Hsien Loong said Israel’s war in Gaza, the war in Ukraine, tensions in the South China Sea and climate change would weigh on the global economy.
“We must expect the external environment to be unfavorable to our security and prosperity in the coming years,” he said.
The central bank kept monetary policy on hold in April and October last year to reflect growth concerns, and had previously tightened it in five consecutive reviews.
From this year, MAS will publish its monetary policy quarterly rather than semi-annually, citing the need to “strengthen monetary policy communication”.
Instead of using interest rates, the central bank drives monetary policy by allowing the local dollar to appreciate or depreciate against the currencies of its major trading partners within an undisclosed range known as the Singapore Dollar Nominal Effective Exchange Rate (S$NEER). Managed.
Adjust the policy through three levers: policy band slope, midpoint, and width.
The table below shows what economists from various institutions expect MAS to announce on January 29th.
UOB No change
Bank of America No change
Barclays No change
OCBC No change
DBS unchanged
Goldman Sachs No change
Deutsche Bank No change
Fitch No change
Oxford Economics No changes
HSBC No change
Maybank No change
Moody’s No change
MUFG No change
(Reporting by Kok Shinhui in Singapore; Editing by Kanupriya Kapoor and Neil Frick)