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Quick takes: Still negative inflation, say local banks


UOB: We are concerned of the recent development in the global growth/inflation landscape, especially the resurgence of the downward pressures on oil prices and the volatility in equity markets. Moreover, the currencies (eg: Malaysian ringgit, Indonesian rupiah, Thai baht, Korean won) of several of Singapore's larger importing countries had been depreciating against the Sing dollar in H2 2015, and this may result in lower imported inflation, further pushing future inflation lower.

Although we are maintaining our 2015 headline and core inflation forecast of -0.3 per cent year-on-year and 0.6 per cent year-on-year respectively for now, judging from the current global growth/inflation environment and the risk-off conditions across various riskier asset classes, there could be further downside risks to prices in the months ahead.

Our base case is for the MAS to maintain their current monetary stance of a "modest and gradual appreciation" of the Sing dollar NEER (nominal effective exchange rate) unchanged at our estimated 1.0 per cent per annum rate in the next policy meeting in October. But if the downside risk on expected core inflation increases, some policy actions (such as a lowering of the Sing dollar NEER midpoint) could be expected. We maintain our USD/SGD view that it will probably end 2015 at 1.43/USD.

OCBC: Despite the sustained contraction in headline inflation, core inflation however accelerated to 0.4 per cent in July from 0.2 per cent in June, reflecting higher services inflation which rose 0.6 per cent in July (June: 0.5 per cent). Services inflation was largely lifted by higher tuition and healthcare services fees seen on-month.

We maintain our 2015 headline and core inflation expectation at -0.2 per cent and +0.5 per cent year-on-year respectively, which are projected at the lower half of the MAS headline and core inflation forecast range of -0.5-0.5 per cent and 0.5-1.5 per cent respectively.

More importantly in the coming couple of months, we view that headline inflation may ease further given sustained weak oil prices, and the sustained high COE premium base seen back in the second half of 2014.

DBS: The downside risk on inflation is still building up. Resurgence of global market risks has dampened oil prices and sent the equity market into a tailspin. This will exacerbate existing global deflationary pressures, which will weigh down Singapore's domestic prices. Plainly, it's becoming more likely that overall inflation for the year could well fall marginally short of our existing projection of -0.1 per cent and closer toward the lower end of the official forecast range of -0.5 per cent to 0.5 per cent.

Separately, core inflation has held up. Even though it was expected to dip into the red, it rose to register 0.4 per cent year-on-year instead, up from 0.2 per cent previously. While negative core inflation will surely tip the scales towards a policy response from MAS, recent depreciation in Asia currencies could well exert similar pressures as well.