Singapore seen keeping monetary policy unchanged amid inflation risks: Reuters poll By Reuters

By Xinghui Kok

SINGAPORE (Reuters) – Singapore’s central bank is widely expected to keep monetary policy unchanged this week and hold off easing settings amid lingering risks to the inflation outlook caused by geopolitical tensions.

Of the 10 analysts polled by Reuters, nine expect the Monetary Authority of Singapore (MAS) to hold off making changes to its policy at the scheduled review on Friday.

“The MAS is likely in no rush to ease policy setting, with core inflation still above its soft 2% target,” said Lloyd Chan, senior currency analyst at MUFG global market research.

“We think core inflation will only return to the 2% level in early 2025, while there is upside risk to inflation from rising global freight costs and geopolitical tensions. Moreover, Singapore’s economic growth picked up in Q2, while leading indicators suggest growth momentum will improve in the coming months.”

Inflation in the Asian financial hub remains sticky. While it cooled from a peak of 5.5% in early 2023, it remains at 3.1% year-on-year over April to May.

MAS managing director Chia Der Jiun said last week that he expects core inflation to stay on its disinflation path and ease more significantly in the fourth quarter.

“It is forecast to reach around 2% in 2025, barring further shocks,” said Chia at the release of MAS annual report.

He also expects Singapore’s full-year economic growth to come in closer to its potential rate of 2% to 3%, in the upper half of the trade ministry’s 1% to 3% forecast range.

Central banks globally are starting to cut rates slowly. The European Central Bank left rates steady this month, after delivering a first cut in June, while the Federal Reserve is tipped to deliver its first cut in September.

Instead of using interest rates, Singapore manages monetary policy by letting the local dollar rise or fall against currencies of its main trading partners within an undisclosed band, known as the Singapore dollar nominal effective exchange rate, or S$NEER.

It adjusts policy via three levers: the slope, mid-point and width of the policy band.

The outlier expecting a loosening of monetary policy this week was DBS, which sees scope for the MAS to slightly ease the appreciation pace of the band in the second half and said an early move in July also couldn’t be ruled out.

However, Barclays said the risk of a tightening via an increase in the slope was more likely than an easing, but said the overall probability of an adjustment was low.

Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.

Growth slowed to 1.1% in 2023 from 3.8% in 2022. Its preliminary GDP rose 2.9% on a year-on-year basis in the second quarter of 2024, stronger than expected and leading economists to upgrade their forecasts.

The MAS has not changed policy since a tightening in October 2022, which was the fifth tightening in a row, as broader concerns about growth kept authorities sidelined.

MAS’ Chia said last week that “if MAS had not tightened monetary policy, core inflation would have reached 7% and headline 8%”.

Core inflation peaked at 5.4% in the first quarter of 2023 and headline inflation at 7.3% in the third quarter of 2022.

MAS this year began making policy announcements every quarter instead of semiannually.