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SINGAPORE ECONOMY

2019 core inflation comes in at 1%; MAS likely to stand pat in April review

December core inflation at 0.7 per cent while headline inflation touches 0.8 per cent

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Singapore's central bank will probably leave monetary policy untouched at its next review in April, analysts said on Thursday, as the latest data showed inflation picking up again in the final stretch of 2019.

Singapore

SINGAPORE'S central bank will probably leave monetary policy untouched at its next review in April, analysts said on Thursday, as the latest data showed inflation picking up again in the final stretch of 2019.

Core inflation, which is used by the Monetary Authority of Singapore (MAS) as a policy guide, scraped in at 1 per cent for the year - easing from 1.7 per cent in 2018, but hewing to an official forecast for "the lower end" of the 1 per cent to 2 per cent range.

Otherwise, headline or all-items inflation inched up from 0.4 per cent in 2018 to 0.6 per cent in 2019 - slightly above the forecast of 0.5 per cent.

Noting that the central bank's mandate is to ensure medium-term price stability, United Overseas Bank economist Barnabas Gan told The Business Times on the phone: "Prices are stable, although weak... From that angle, the MAS will likely not move in April."

Core inflation, which excludes housing and private transport costs, rose to 0.7 per cent in December, from 0.6 per cent in November, while headline inflation hit 0.8 per cent - its highest level since May - on the back of a faster increase in both private road transport and services prices.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye called the final-stretch uptick consistent with the trend across Asia, where food and oil prices rose in end-2019, and added that "inflation has bottomed out but will likely remain manageable in 2020" as growth recovers gradually.

With that, Barclays Bank's base case is for a stable monetary policy stance in April, said economist Brian Tan. He said: "The MAS seems to be also monitoring the resilience of services sector activity and should be heartened by its rebound in Q4."

Trimming the pace at which the Singapore dollar is allowed to appreciate, the MAS eased policy for the first time in three years at its half-yearly meeting last October. But analysts now don't expect a repeat this April.

While "growth is likely to accelerate this year", policymakers will prefer a wait-and-see approach on Singapore's economic recovery before coming to a decision, Mr Gan told BT.

Still, the Sing dollar has retained its relative strength, and is believed to be trading in the upper half of its nominal effective exchange rate (NEER) policy band amid capital inflows.

That's left some leery of ruling out a more aggressive pullback to "zero-slope" flattening, as the Singdollar's strength "could prompt further easing at the April meeting to undo some of the cumulative tightening", wrote Ong Sin Beng, from JP Morgan's Asian emerging markets research team.

Other risks to the currency outlook include milder-than-expected growth. Citi analysts Kit Wei Zheng and Ang Kai Wei said "slope flattening in April cannot be entirely ruled out" if the job market and domestic demand soften further; the negative output gap widens; or "entrenched disinflation momentum" kicks in.

As for what else lies on the risk horizon, watchers held mixed views over how inflation might come in higher or lower than projected.

While Mr Gan pointed to an improving growth outlook and low base in 2019 as upside factors, OCBC Bank economist Howie Lee flagged the negative risks of slowing wage growth at home and importing "stubbornly low inflation rates" in external markets.

To make matters worse, the viral infection that is spreading out of Wuhan "could also impact sentiment and thus dampen price pressures", JP Morgan's Mr Ong added.

The MAS and Ministry of Trade and Industry (MTI) on Thursday stuck to a joint projection for core and headline inflation to both fall between 0.5 per cent and 1.5 per cent in 2020.