Singapore Central Bank: Steady as She Goes Until April

The Monetary Authority of Singapore (MAS) has maintained its monetary policy stance, extending the pause for the fifth time in a row amid moderate imported inflation. In its July 2024 statement, MAS said it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band (S$NEER), with no changes to its width and the level at which it is centered. This decision aligns with market expectations and reflects the central bank's cautious approach to managing inflation and supporting economic growth.



MAS noted that headline inflation, CPI all-item, edged down to 2.8% yoy in Q2 of 2024 from 3.0% in Q1, due to lower-than-expected private transport costs in recent months. Meanwhile, it kept forecasts for core inflation at 2.5 to 3.5% this year, noting a further slowdown in Q4 to move around 2% in 2025 as crude oil prices have retreated from their peak in April. Regarding the GDP, growth is likely to come closer to its potential rate of 2 to 3%, due to better performance in H2 of 2024, with manufacturing and financials benefiting from the broadening tech upturn and the expected fall in global interest rates.



MAS's decision to keep its policy settings unchanged is in line with its goal to ensure stable prices in 2025. The central bank expects headline and core inflation pressures at 2.3% and 1.8%, respectively, suggesting little impetus for monetary policy to move anytime soon. However, MAS remains vigilant to risks to inflation and growth, closely monitoring global and domestic economic developments.

RHB, a local bank, expects MAS to maintain its current policy parameters into 1H25, emphasizing the entrenched disinflation trend and manageable inflation risks. However, the bank warns of three risks: geopolitical tensions that could cause unexpected supply chain disruptions, the potential rise in developed market protectionist policies that could limit free trade, and risks from China, especially if recent policies fail to stop the decline in property prices, which could impact Singapore’s growth outlook in 2025.



UOB, another local bank, said MAS might need to slightly reduce the S$NEER slope by 50 basis points in its January or April 2025 Monetary Policy Statement (MPS), citing persistent demand-side inflation risks due to strengthening economic activity and the possible closing or even turning positive of the output gap in the second half of 2024. Based on advance estimates, Singapore's economy grew faster at 4.1% YoY in Q3.

In conclusion, MAS's decision to maintain its current monetary policy stance reflects its cautious approach to managing inflation and supporting economic growth. While external risks persist, MAS remains vigilant to risks to inflation and growth, closely monitoring global and domestic economic developments. Investors should stay tuned for any changes in MAS's policy stance, as they may impact the Singapore dollar and the overall economy.