Singapore: MAS leaves monetary policy unchanged in July
Latest bank decision: At its quarterly monetary policy meeting held on 26 July, the Monetary Authority of Singapore (MAS) maintained the prevailing rate of appreciation of the Singapore dollar’s nominal effective exchange rate (S$NEER) for a fifth straight meeting, as markets had widely anticipated. The Bank also kept the width of the policy band and the level at which it is centered unchanged.
Monetary policy drivers: The MAS stood pat in July to keep the Singaporean dollar on an appreciating path and curb imported price pressures. The decision came on the back of the softest MAS core inflation rate in over two years in Q2, plus higher-than-expected GDP growth in the same quarter. Additionally, the MAS noted that core inflation is set to cool sharply in Q4, averaging between 2.5–3.5% in 2024 as a whole. Coupled with the expected strengthening of GDP growth in H2, these factors supported its decision to maintain current monetary conditions.
Policy outlook: In its communique, the Authority did not provide explicit forward guidance, but it continues to see risks to inflation as broadly balanced: Quicker-than-expected growth in labor costs poses an upside risk, while higher-for-longer global interest rates pose a downside risk. As such, the MAS stated that it would continue monitoring global and domestic economic factors. Most analysts expect policy easing to start before the end of the year, in line with moderating inflation plus expected interest rate cuts in the U.S.
The next monetary policy meeting will be held no later than 14 October.
Panelist insight: United Overseas Bank analysts Jester Koh and Peter Chia expect the MAS to start its policy easing cycle later this year:
“In the case of imported inflation, any reacceleration, particularly in the ‘food and live animals’ component could slow the progress of disinflation given food has a significant weight of 21.1% in the overall CPI basket. Thus, it may be more prudent for MAS to maintain its prevailing restrictive slope settings for a tad longer and we expect policy normalization to commence in the Oct 2024 MPS (via a slight S$NEER slope reduction).”
DBS analysts Chua Han Teng and Philip Wee echoed this view:
“Given the MAS’s sanguine economic outlook and lower inflation projections, the SGD NEER has and should continue to hold in the upper half of the policy band. Per our model currently, this should keep USD/SGD below 1.35, or the level implied by the mid-point of the SGD NEER policy band. Looking ahead, we see the door opening for USD/SGD to trade in a lower 1.32-1.34 range later in the year fuelled by the drop in Singapore’s core inflation and a weaker DXY from the two Fed cuts that we expect in the remainder of 2024.”