HALISTER1: Singapore’s MAS Set to Tighten in October: Maybank Kim Eng, UOB

Singapore’s MAS Set to Tighten in October: Maybank Kim Eng, UOB

(Bloomberg) -- The Monetary Authority of Singapore is likely to shift to a policy of seeking appreciation in the local dollar against its trade-weighted basket in October, according to Maybank Kim Eng and United Overseas Bank.
  • MAS holds its next biannual policy review in April; last year, it moved to a neutral stance of zero appreciation for the Singapore dollar
    • The central bank uses the currency rather than interest rates as its main policy tool
  • February consumer prices rose 0.7% y/y, highest since 2014
    • Core inflation slowed to 1.2% y/y from 1.5% in January
  • Maybank Kim Eng (Chua Hak Bin and Lee Ju Ye, economists)
    • MAS is set to shift to a “mild appreciation bias” at the October meeting as a manufacturing and export recovery since late 2016 will likely boost GDP growth to 2.5% this year
    • The central bank is set to maintain its neutral bias when it next decides on policy in April
    • SGD NEER is currently trading slightly below the mid- point of the policy band
    • Maybank Kim Eng maintains its average headline inflation forecast at +1.2% and core inflation estimate at +1.6% for 2017, at the upper half of MAS’s projected range
    • Higher commodity prices, including oil and food, and a cyclical recovery will likely increase inflation readings incrementally over the year
  • UOB (Francis Tan, economist)
    • Improvement in wage growth and lower labor redundancies in next few months could prompt the MAS to seek an appreciation of the SGD NEER slope by 0.5% as early as in October
    • UOB lowers its year-end USD/SGD forecast to 1.46 vs 1.48
    • SGD NEER movements seem to be pricing in an appreciation stance at the upcoming policy meeting in April because of higher core inflation data over the past few months; this may be premature as labor market remains weak
    • Since the start of 2017, SGD NEER has been trading above its mid-point 91% of the time
    • Higher global oil and commodity prices will lead to higher inflationary pressures this year
  • NOTE: USD/SGD gains 0.2% at 1.4008
  • Related story: Singapore’s Central Bank Seen Holding Fire as Growth Recovers

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Chua Hak Bin (Maybank Kim Eng Research Pte Ltd)
Francis Tan (United Overseas Bank Ltd)
Ju Ye Lee (Maybank Kim Eng Research Pte Ltd)

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