Singapore central bank seen on hold in April, but easing risks rise

[SINGAPORE] The risk of monetary easing has risen as global headwinds buffet Singapore's trade-reliant economy, but the central bank may stay on hold at its next meeting in April barring a sharper slowdown in China and steeper jobs losses, a Reuters poll showed.

Analysts have renewed focus on the possibility of further easing by the Monetary Authority of Singapore (MAS) since the 2016 official forecast for headline inflation was cut and amid weakness in exports, oil prices and swings in financial markets.

Eight of 16 analysts in a Reuters poll said the chances of MAS easing at its semi-annual review next month have increased, with four saying the central bank was likely to ease. "The lower inflation forecast, along with subdued GDP growth, disappointing trade and manufacturing figures, excluding the jump in January IP (industrial production), all suggest that the chances of MAS easing have risen recently," said Andrew Wood, head of Asia country risk research for BMI Research.

Although Singapore's gross domestic product rose more than expected in the fourth quarter, full-year growth in 2015 slowed to 2.0 per cent, the weakest since 2009.

The MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).

Twelve of 16 analysts in the poll, conducted between Feb 29 to March 2, said they expect MAS to keep policy on hold.

One reason cited by such economists was that the MAS has kept unchanged its outlook for core inflation, which it calls the most relevant indicator for monetary policy.

The MAS and the Ministry of Trade and Industry recently cut their 2016 forecast for all-items inflation to -1.0 per cent to 0.0 per cent. The MAS, however, kept its 2016 forecast for core inflation unchanged at 0.5 per cent to 1.5 per cent. "Growth and inflation dynamics are sluggish but not dire,"said Selena Ling, head of treasury research and strategy for OCBC Bank, adding that the Singapore dollar NEER is also not testing the extreme side of its policy band.

The median view on the chances of easing in April among 10 analysts who gave a per centage estimate, was roughly 27 per cent. "What's required for them to change is if unemployment rate rises quite substantially from here," said Michael Wan, an economist for Credit Suisse. "The other trigger would be if they see very clear signs that China is deteriorating further from what we've seen thus far in the first quarter. The last point is if core inflation falls to negative," he added.

Singapore's central bank eased monetary policy twice last year, once outside of a scheduled policy meeting in January 2015.

It can adjust policy by changing the slope, width or midpoint of the Singapore dollar NEER policy band. Most analysts estimate that the slope has an appreciation rate of 0.5 per cent per year.

REUTERS