Singapore: MAS tightens its monetary conditions – UOB

Head of Research at UOB Group Suan Teck Kin, CFA, and Senior FX Strategist Peter Chia review the latest decision by the MAS.

Key Takeaways

“The Monetary Authority of Singapore (MAS) in its scheduled monetary policy statement (MPS) release on Thu (14 Oct) announced the re-centring of the mid-point of the S$NEER policy band up to its prevailing level, but without any change to the slope and width of the band. As inflationary pressures have intensified since the economic recovery from the COVID-19 pandemic, this is the fifth time in a row that the MAS has strengthened the S$NEER policy since kicking off the cycle at the scheduled release in Oct 2021.”

“The MAS narrowed the inflation forecasts in its latest statement, with projections for 2022 headline inflation at around 6% and core inflation at around 4%, from the forecast ranges of 5.0-6.0% and 3.0-4.0%, respectively. These projections are consistent with our call of 6% (for headline or CPI-All Items) and 4.2% (core), as inflationary pressures remain elevated with Sep CPI readings hitting the highest since 2008.”

“The MAS expects that in 2023, after taking into account all factors including the GST increase, core inflation is expected at 3.5–4.5% on average over the year, and CPI-All Items inflation at 5.5–6.5%. Even after excluding the one-off effects of the GST increase early next year, core inflation would still remain above trend at 2.5–3.5% and headline inflation at 4.5–5.5%.”

“Singapore’s preliminary 3Q22 GDP announced at the same time came in at 4.4% y/y from a revised 4.5% growth in 2Q22, within our call of 4.2% but well ahead of Bloomberg poll of 3.5%. On a seasonally adjusted basis, 3Q22 GDP rebounded strongly by 1.5% q/q, from -0.2% in 2Q22. Manufacturing sector slowed as we had anticipated to 1.5% y/y from 5.7% in 2Q22 while services sector outperformed with a 6.1% y/y gain compared to 4.8% in 2Q22 and despite a strong performance of 6.8% in the same quarter last year. With the 3Q22 outcome largely within our expectations, we keep our GDP growth outlook for Singapore at 3.5% for 2022, before easing to 0.7% for 2023 to reflect the broad slowing in external outlook next year.”

“MAS Outlook – Singapore’s monetary policy is further into a restrictive setting after five rounds of tightening since Oct 2021. With the MAS pulling only one lever this time, there is still room for further tightening into 2023, especially if core inflation does not show signs of moderation. While we believe off-cycles are likely done for the remainder of 2022, it may still be a possibility especially in early 2023.”