SINGAPORE'S central bank disappointed the bears on Wednesday, easing monetary policy only slightly by keeping the Singapore dollar on an appreciating path - but at a marginally slower pace than before.
In its October monetary policy statement, the Monetary Authority of Singapore (MAS) said that it is continuing with its policy of a "modest and gradual" appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) band, although the rate of appreciation will be "reduced slightly". It made no change to the width of the policy band and the level at which it is centred.
In doing so, MAS once again moved contrary to what most market players were expecting. Prior to Wednesday's half-yearly policy statement, the consensus view was for a more aggressive easing stroke - either through a downward recentring or a flattening of the band.
Said Barclays economist Leong Wai Ho: "Today's outcome was somewhat unexpected. Although 16 out of 25 economists polled by Bloomberg expected the MAS to ease, most looked for a more aggressive move - a more meaningful slope reduction (at least one per cent), or a re-centring or widening the policy band, none of which materialised.
"We believe the smaller-than-expected slope adjustment was a token signal, as there was no material change to MAS's assessment of growth and inflation ... It does not signal to us that additional policy easing in April 2016 is likely, unless there is a significant worsening in the external outlook or signs of a clear and systemic external shock."
Indeed, the central bank narrowed its 2015 inflation forecasts to the lowest ends of earlier expectations. It now sees core inflation and headline inflation coming in at around 0.5 per cent and -0.5 per cent respectively - at the bottoms of previous forecast ranges of 0.5-1.5 per cent for core inflation, and -0.5-0.5 per cent for headline inflation.
Beyond this year, MAS expects core inflation - which strips out accommodation and private transport costs, and is the focus for monetary policy - to "rise gradually" over the course of 2016 towards its historical average of close to 2 per cent.
"(This is) largely due to the dissipation of the disinflationary effects of lower oil prices, and budgetary and other one-off measures," said MAS, which stressed that such effects will begin to fade from the end of this year.
Following Wednesday's unexpectedly mild easing move, the Singapore dollar surged one per cent - although the rally is expected by analysts to be shortlived.
On the growth front, the Singapore economy narrowly dodged a technical recession in the third quarter, with advance GDP estimates from the Ministry of Trade and Industry showing an expansion of 0.1 per cent on a quarter-on-quarter, seasonally adjusted annualised basis - a reversal from the 2.5 per cent contraction in Q2.
Despite the better-than-expected Q3 growth figures, MAS said that Singapore's economic growth is "slightly weaker" than earlier envisaged - pulled down in part by sluggish external conditions. It added that the overall outlook for the global economy has softened since April, when the previous monetary policy meeting was held.
Said the central bank: "GDP growth in Singapore is likely to come in at around 2-2.5 per cent in 2015 as a whole, with risks tilted towards the downside. The economy is expected to expand at a broadly similar pace next year, with cyclical headwinds likely to persist into early 2016.
"This measured adjustment (to monetary policy) follows the move to reduce the rate of appreciation of the policy band in January this year, and is supportive of economic growth into 2016, while ensuring price stability over the medium term."
Conceding to the soundness of MAS's decision - despite his own and the market's call for more forceful easing - Mizuho economist Vishnu Varathan said: "With modest growth pick-up expected to coincide with core inflation bounce, step depreciation risks being 'overkill', while slope flattening risks signalling overly benign inflation views."
In January, MAS eased in a surprise off-cycle move, reducing the slope of the S$NEER appreciation bias on the back of a sharp drop in global oil prices.
In contrast, Wednesday's "slight" easing was a "highly calibrated" move, said Citi economists Kit Wei Zheng and Yap Kim Leng. "(It is) consistent with slower than expected but non-recessionary growth, but could keep expectations of further calibrated moves in 2016 alive" - a view Bank of America Merrill Lynch economist Chua Hak Bin shares.
But not all observers - including Mr Leong and Mr Varathan - agree that further policy tweaks are on the cards.
Said Mr Varathan: "Another crucial aspect of the cost of Singdollar depreciation is consequently higher short-term interest rates ... This risks further drag on already-sluggish credit growth amid macro-prudential safeguards, softer business sentiments, and a cooling property market."