SINGAPORE: Singapore’s central bank is expected to keep monetary policy unchanged at its semiannual review this week as inflation remains subdued, but improving economic momentum could open the way for a tightening in 2018. Twenty-four of 25 analysts in a Reuters survey conducted between Sept 25 to Oct 10, predicted the Monetary Authority of Singapore would keep its exchange-rate based policy on hold at its review, due on Oct 13 at 8am (0000 GMT). One analyst expects the MAS to tighten. Thirteen analysts expect the MAS to tighten in 2018, with most of these expecting a move as early as April. The results include eight new responses received after an earlier Reuters poll published on Sept 27.
The government’s advanced estimate of third-quarter gross domestic product, due at the same time, is expected to show that GDP expanded 3.2% from the previous three months on an annualised basis, according to the median forecast in a Reuters survey. From a year earlier, GDP likely grew 3.8%. That would put average year-on-year growth for the first three quarters at nearly 3.1%, slightly above the government’s growth forecast range of 2% to 3% for all of 2017.
Although Singapore’s trade-reliant economy has gained a boost this year from an improvement in global demand for electronics products and components, most economists expect the MAS to stand pat this week, given the lack of strong inflationary pressures. “The price pressures are still quite subdued, inflation is picking up only gradually and hence the policy needs to be accommodative for a bit longer from an inflation perspective,” said Mohamed Faiz Nagutha, Asean economist at Bank of America Merrill Lynch in Hong Kong. Slack remains in the labour market and private consumption has been weak, he added. Core inflation slowed to a five-month low of 1.4% year-on-year in August. In the second quarter private consumption expenditure rose just 0.1% from a year earlier. Chua Hak Bin, regional economist at Maybank Kim Eng, the only analyst in the Reuters poll who expects the MAS to tighten this week, cited the pick-up in economic growth. “The full-year (growth) may well exceed 3.0%… So growth has clearly surprised on the upside,” Chua said.
The MAS could take a forward-looking view on inflation, and tighten by shifting to a slight appreciation bias for the Singapore dollar’s policy band, he added. The MAS manages monetary policy through exchange rate settings, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners within in an undisclosed policy band based on its nominal effective exchange rate (NEER). The central bank kept policy unchanged at its last review in April. It kept the rate of appreciation of the Singapore dollar NEER’s policy band at zero, and made no changes to the mid-point and the width of the policy band. The MAS also reiterated the forward guidance it introduced in October 2016, saying a ”neutral” policy stance is appropriate for an ”extended period”. Eleven analysts said they expect the MAS to remove or tweak its forward guidance, opening the way for future policy tightening. Nine others predicted no change to that language.