CIMB Research: Expect Singapore central bank to ease policy next year
CIMB Treasury and Market Research (CIMB Research) expects the Monetary Authority of Singapore (MAS) to start its monetary policy easing only in January 2025, from July 2024 previously, on elevated core inflation numbers.
MAS’ decision to keep its monetary policy settings — as widely expected — was guided by its expectation that core inflation, which came in at a seven-month high of 3.6 per cent year-onyear in February, will remain elevated in the near term before slowing more discernibly in fourth quarter of this year and next year.
It said MAS expected its measure of core inflation to remain elevated in the near term in conjunction with water tariff hikes in April and upward adjustment in prices of essential services (reflecting the continuation of input and labour cost pass-through), before moderating more markedly in the fourth quarter of this year and next year.
MAS cited shocks to global food and energy prices as well as resurgent labour demand as upside risks to its inflation assessment, while a sharper-than-expected global economic slowdown poses a downside risk.
“MAS’ cautious approach with its inflation outlook indicates the central bank is unlikely to loosen the slope of Singapore dollar nominal effective exchange rate policy band until core inflation eases significantly closer to two per cent,” CIMB Research said in a note on Friday.
Considering that the OctoberDecember inflation data is not yet available, by the time the quarterly meeting takes place in October, monetary policy easing may only take place in January next year at the earliest, against its earlier expectation of July 2024.
Meanwhile, easing imported inflation and domestic cost pressures is expected to ensure core inflation remain on its broad moderating path.
The core inflation outlook indicates a slim chance of the central bank loosening the Singapore dollar nominal effective exchange rate policy setting this year, especially as October-December inflation data would not be available at the time of the quarterly monetary policy meeting in October.
Singapore’s first-quarter growth this year moderated to 0.1 per cent on a seasonally adjusted
quarter-on-quarter basis, while year-on-year performance improved to 2.7 per cent year-onyear due to base effects, according to gross domestic product estimates that are computed largely from data in the first two months of the quarter.
CIMB Research said both readings underperformed market expectations of 0.5 per cent quarteron-quarter and 3.0 per cent yearon-year.
“They may be subjected to upward revisions, once comprehensive dataset that reflect the impact of concert events taking place in March is available.”
The services sector was the main driver of growth in the first quarter of this year, led by consumer-facing sectors in tandem with an increase in tourist arrivals, offsetting the moderation in manufacturing and construction.