MAS Preview: Forecasts from five major banks, continuing with policy normalisation

The Monetary Authority of Singapore (MAS) is expected to release its Monetary Policy Statement (MPS) on Friday, April 14 and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks.

MAS is expected to tighten monetary policy settings.  

ANZ

“We expect the MAS to increase the slope of the policy band by 100 bps to 3% per annum, while keeping the midpoint and width unchanged. This is a less aggressive move than last year when there were three consecutive upward re-centrings that total 550 bps. Within our Taylor Rule, there is no difference between a 100 bps increase in the slope versus a 100 bps upward re-centring of the midpoint. However, a slope increase is less aggressive than an upward re-centring, which we view as more appropriate at this juncture given that core inflation is expected to moderate, and also in light of the additional uncertainty in the global economic outlook.”

BBH

“While it doesn’t have an explicit inflation target, easing headline readings and the slowing economy should allow the MAS to keep policy steady this week.  It will be a close call and there are risks of a hawkish surprise given the continued rise in core inflation. Singapore’s GDP growth will come in below trend in 2023, and downside risks have intensified. At the same time, MAS Core Inflation is expected to remain elevated over the next few quarters, with risks still tilted to the upside. MAS has assessed that, on balance, a further tightening of monetary policy is needed to help ensure that price pressures are dampened over the next few quarters.”  

Standard Chartered

“We maintain our call for the MAS to keep policy unchanged in April. A hawkish risk is if and when the MAS adjusts policy for potentially higher long-term inflation. Finance Minister Lawrence Wong indicated in the recent budget that global inflation may settle at a higher trend than before. The SGD NEER slope, at +1.5% per annum, may need to be adjusted higher (to 2% per annum), in our view, should inflation stay high medium-term. That said, the MAS appears to be more focused on near-term inflation, and given the uncertain environment, we think it may opt to wait to calibrate policy settings for the long term. At the same time, we do not expect the MAS to take its focus away from inflation, given that inflation risks remain tilted to the upside.” 

TDS

“We expect the MAS to steepen the slope of the S$NEER band by 50 bps and no changes to the midpoint and width of the band. Core inflation remains too high and sticky for MAS to consider a pause. SGD should benefit from a further tightening of monetary policy settings and we suggest selling USD/SGD on rallies up to around 1.34. Expect USD/SGD to fall to 1.30 by Q4.”

Citi

“3 reasons why the MAS may entertain a final but ‘gentler’ slope steepening than a more aggressive upward re-centering of the band this week – (1) The expected 2H23 pickup in the Singapore growth outlook supports a further tightening of financial conditions. However, the extent to which the expected 2H23 pickup is challenged by tighter global financial conditions may see a more prudent approach from the MAS to steepen the 12- month NEER slope rather than an upward re-centering; (2) Job market tightness is likely easing more slowly than expected (if at all), with labor costs expected to add to core inflation over the medium term. Analysis of 4Q22 job market data therefore, suggests thresholds for slope steepening have been met rather than for upward re-centering; (3) Singapore’s core CPI to stay above “target” after peaking in 1Q23 – milder core inflation surprises in 1Q23 and gentler trajectory of core CPI is also historically more consistent with steeper slope. We expect Singapore’s core CPI to be 50-70 bps higher than MAS forecast in 2023, implying a gentler slowdown than MAS had forecast.”