Singapore’s MAS Is Set to Extend Policy Pause on Geopolitical Tensions

Singapore’s central bank is set to leave its monetary policy unchanged for a second straight meeting as core inflation wanes and economic growth remains fragile.

(Bloomberg) — Singapore’s central bank is set to leave its monetary policy unchanged for a second straight meeting as core inflation wanes and economic growth remains fragile.

The Monetary Authority of Singapore, which uses the exchange rate rather than interest rates to stabilize prices, will likely favor no action at its twice-a-year policy review Friday, according to all 18 economists polled by Bloomberg. This will extend the pause in tightening seen in April, after the central bank allowed the Singapore dollar to appreciate in five moves between October of 2021 and 2022 to blunt the impact of imported inflation.

Still, Friday’s decision will be far from straightforward as MAS weighs the impact of worsening geopolitical tensions and higher oil prices on a city-state highly exposed to external headwinds. Some analysts penciled in the chance of a surprise move, but were split as to whether it will be a tightening or loosening — highlighting the competing risks of resurgent inflation and slowing growth.

“The MAS is well aware of the negative consequences of premature reversal of monetary tightening,” said HSBC Holdings Plc economist Yun Liu. “After all, elevated and sticky core inflation remains the priority of the MAS, trumping concerns relating to sharply slowing growth.”

Inflation has cooled, with the closely-tracked core measure easing to a 16-month low in August. But cost pressures are again rearing their head. Renewed conflict in the Middle East is threatening to push up energy costs, with gas, electricity and water prices set to rise in the coming months. A one percentage point hike in a consumption tax to 9% will kick in at the start of 2024.

Singapore’s central bank might even take it a step further — Citigroup Inc., RHB Bank Bhd. and Bank of America Corp. are not discounting the possibility of a slope steepening as inflation risks go higher.

Any surprise tightening will complicate the already-fragile growth. The government had narrowed its 2023 growth estimates to a range of 0.5%-1.5% from 0.5%-2.5% previously amid China’s faltering recovery and a global demand downturn. However, manufacturing returned to expansion and new export orders were on the up in September.

Should MAS place more weight on an external outlook, Maybank and United Overseas Bank Ltd. see a 20% and 40% chance, respectively, that it might reduce the slope. 

The meeting is the last major policy decision involving Managing Director Ravi Menon, who retires from public service by end-2023, and will be succeeded by a former deputy Chia Der Jiun. Menon pushed back in March against investors expecting central banks to start easing soon, calling them “excessively optimistic.” 

Here’s what else to look out for in the MAS statement:

  • Any changes to inflation and GDP forecasts, with an early read of third-quarter gross domestic product released Friday morning. The median in a Bloomberg survey is for the economy to expand 0.6% in the third quarter from the previous three months, and 0.4% from a year ago
  • As of last month, the MAS expected 2023 headline and core inflation to average 4.5%–5.5% and 3.5%–4.5%, respectively
  • The authority is likely to share updates to its policy outlook, and how soon a pivot can occur. Economists were split on forward guidance, with seven out of 13 expecting policymakers to take on a more dovish stance and potentially build a case for monetary easing in April 2024. The remainder saw no change in tone
  • Markets will be looking for hints on whether MAS officials might hold an unscheduled meeting. Survey respondents were nearly unanimous in thinking there won’t be further action before next April’s scheduled meeting

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