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MAS keeps surprises by standing pat, Sing dollar jumps

Tuesday, April 14, 2015 - 09:42

[SINGAPORE] Singapore's central bank on Tuesday surprised markets by keeping monetary policy settings unchanged despite slowing growth and benign inflation, triggering a rally in the Singapore dollar.

"MAS will therefore maintain the policy of a modest and gradual appreciation of the S$NEER policy band. There will be no change to the slope and width of the policy band, and the level at which it is centred," the Monetary Authority of Singapore said in its half-yearly policy statement.

Commentary

Jonathan Cavenagh, Senior FX strategist, Westpac: "The MAS appears to be counting on a few things to drive an improvement in the outlook - better global growth, particularly from the G3 and a pick-up in oil prices in the second half of this year.

"This latter point will boost oil related services and inflation. At the same time, the labour market is expected to remain tight largely due to supply constraints. Hence if growth momentum does improve there is a risk inflation pressures turn higher.

"These factors seem to be the main rationale for today's no change stance. I would generally see downside risks to this view, with core inflation pressures remaining muted and domestic demand quite soft, with pass through from the tight labour market remaining limited. This creates the risks of a easing at the next meeting in October or another inter-meeting move."

Wai Ho Leong, Economist, Barclays: "It is a timely reminder to us in the market that according to their view, growth is not at risk of falling out of the official forecast range of 2 to 4 per cent. Inflation is clearly is still within (their) range.

"If indeed we do get a recovery trajectory as we are forecasting and as the government forecast is suggesting, you are then pencilling in an implicit recovery in the second half. If you see that happening, then it reduces the chance of an easing in October."

Sean Yokota, Head of Asia Strategy, SEB: "It was a surprise. They may want to reduce volatility by keeping policy stable since they set policy based on $NEER. USD/SGD can still rise as long as other Asian currencies weaken.

"They'll have to act in October and loosen."

Francis Tan, UOB: "Certainly there will be room depending on the upcoming inflation expectations. But now it seems like the inflation seems to be falling within the target range set out by the MAS.

"So as of now, I don't see anything in the dashboard. But coming up further, if oil prices were to go down substantially I will say then the MAS will be pressured to ease or to lower their inflation expectations or inflation forecast and then there will certainly be a lot more room for further easing.

"Between now to October there is half a year and now it's very fluid in the market, especially with regards to deflation. And if core inflation, currently hovering just above 1 percent, goes down even towards 0.5 percent in the next few months, I think they may do the off-cycle policy again like what we saw in January.

"All eyes are on oil prices."

Vaninder Singh, Economist, RBS: "I believe that we are in a slowdown. While we may not be close to the bottom, the window to ease is now starting to close given expectations of the US Fed report in September.

"There is a short-term risk, but I would say that it is a low risk. The MAS only did it once, and it was out of character. Unless the outlook for the economy deteriorates substantially, the MAS will not make any unexpected changes."

REUTERS