Most analysts now see Singapore central bank holding off on further easing in April

[SINGAPORE] Singapore's central bank is expected to maintain its stance of allowing the local dollar's appreciation in April, a Reuters poll showed on Wednesday, a marked change from expectations just a few weeks ago that it would ease policy again to ward off deflationary pressures.

Twelve out of 17 economists and currency analysts surveyed expect the Monetary Authority of Singapore (MAS) to hold off from easing its exchange-rate based monetary policy at its semi-annual policy review expected around mid-April.

The remaining five expect the central bank to ease policy by lowering the mid-point of the Singapore dollar's policy band.

Rather than setting interest rates, the MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within a secret trading band based on its nominal effective exchange rate (NEER).

A similar poll early this month showed most market watchers expected the MAS to ease policy again in April after a surprise move on Jan 28 at an unscheduled meeting. But analysts in the latest survey noted core inflation has since inched up from a five-year low.

Core inflation, which excludes car-related and accommodation costs, rose 1.3 per cent in February from a year earlier, up from January's 1.0 per cent, the lowest since March 2010.

The MAS focuses more on core inflation than broader, headline consumer prices, which have fallen for four straight months largely due to sliding global oil prices as well as lower housing and car-related prices.

Among the 12 analysts expecting no policy easing, seven said they either expected or saw some chance of the MAS widening the policy band to accommodate currency market fluctuations.

"We believe the MAS is unlikely to further ease policy in April, as the revised inflation forecast still holds," analysts at HSBC said in a research note.

"Instead, we expect it to widen the band to +/-3 per cent to increase policy flexibility, given rising economic uncertainty and financial market volatility."

Currently, analysts estimate the band is 2 per cent of the mid-point on either side.

Some analysts also believe the central bank is likely to maintain the current policy to stabilise the Singapore dollar as global foreign exchange markets grow more volatile.

After January's easing, the Singapore dollar NEER hit the bottom of the policy band, analysts said. The city-state's unit has lost some 3 per cent against the US dollar, making it the third-worst performing Asian currency so far this year, Thomson Reuters data showed.

The central bank was spotted intervening to support the Singapore dollar, resulting in tighter domestic liquidity conditions, some analysts said. On Tuesday, the benchmark three-month interest rate rose above 1 per cent for the first time in more than six years.

Further easing may exacerbate weakness in the Singapore dollar and the central bank may have to intervene further, analysts said.

Still, some economists expect the central bank to ease policy by lowering the mid-point of the policy band, due to a subdued outlook for both inflation and economic growth.

"We are looking for two things. Number one, a move lower in the mid-point of the band...and two, also a change in slope to zero per cent. So a double move," said Vaninder Singh, an economist for RBS in Singapore.

Exports fell much more than expected last month as China's slowing economy hit the trade-dependent state.

More than 20 central banks around the world have taken advantage of cooling inflation to ease policy so far this year to boost sluggish growth and fend off deflation risks.

REUTERS