MAS MAY KEEP NEUTRAL STANCE

Expectation on back of stronger growth outlook, less inflationary pressure, say analysts

SINGAPORE

SINGAPORE’S recovery from a contraction last year may give the central bank little incentive to adjust its policy stance as it monitors the impact of higher United States interest rates.

The Monetary Authority of Singapore (MAS), which uses the currency rather than interest rates as its main policy tool, will keep its stance unchanged at its next bi-annual meeting in midApril, according to 15 of the 16 economists surveyed by Bloomberg. The MAS shifted to a neutral stance of zero appreciation for the local dollar last year.

Central banks in Asia are con- tending with the risk of capital outflows and weaker currencies as the US gradually raises interest rates. Here, policymakers can take comfort in a stronger growth outlook, with economists forecasting growth of 2.3 per cent this year from 2 per cent last year.

“Inflationary pressures are not really building up that much, so MAS doesn’t need to tighten yet,” said Brown Brothers Harriman currency strategist Masashi Murata.

“At the same time, economic growth looks fine, you have the US, China, the eurozone, all improving, which means that Singapore’s economy is going to improve. That’s why MAS doesn’t need to ease more.”

MAS guides the Singapore dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of a band.

The central bank is forecasting inflation will average 0.5 per cent to 1.5 per cent this year, after almost two years of declining prices.

It sees gross domestic product expanding one to three per cent this year, partly driven by a pickup of semiconductor exports tied to China’s supply chain. Domestic demand is still weak though, with unemployment hitting a sixyear high in the fourth quarter.

The dependence on China’s economic cycle may be Singapore’s weak spot, said Vaninder Singh, a Singapore-based economist at Natwest Markets, a unit of Royal Bank of Scotland Group Plc. Singh is the only economist surveyed who is forecasting the MAS will ease policy in April by re-centring the currency band lower.

“I’ve had an easing call for a while based of the underlying economy,” he said.

“If you look at private consumption, the economy is growing only from manufacturing, this is coming from China. China may be going for a soft landing, but a soft landing in China may still have a significant impact on Singapore.” Bloomberg