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MAS may ease up on monetary policy: economists

There are now more signs that an easing in monetary policy could be on the cards, say economists, with Singapore's central bank on Monday indicating that it will be watching volatile oil prices closely.


THERE are now more signs that an easing in monetary policy could be on the cards, say economists, with Singapore's central bank on Monday indicating that it will be watching volatile oil prices closely.

In their joint statement on December's inflation figures, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said that their forecasts for headline and core inflation remain the same "at this stage" - at -0.5 to 0.5 per cent and 0.5 to 1.5 per cent respectively.

"However, there is significant uncertainty over the outlook for average global oil prices for the year as a whole. MTI and MAS will continue to closely monitor the developments in global oil prices and assess their impact on domestic inflation."

The joint statement's cautious tone prompted several economists to flag the rising odds of a weaker monetary policy stance, come April - even if it isn't their base case yet.

OCBC economist Selena Ling told The Business Times: "For now, we still think it's less than a 50 per cent probability (that MAS will ease), but the risks have definitely grown over the last month."

These include the slippage in oil prices to below the US$30 per barrel mark, heightened volatility in financial markets, global economic uncertainty and rising geopolitical risks due to terror attacks.

Added Barclays economist Leong Wai Ho: "I'm coming round to the view that there's an increasing risk that they'll ease. You have a backdrop that is still highly disinflationary - with international oil prices - and activity doesn't seem to be rebounding. If anything, it's cooling off further.

"The last few times of easing were just token adjustments. This time, if easing happens, it will be more significant . . . Given that the slope (of the Singapore dollar nominal effective exchange rate - S$NEER - band) is already very flat, it might be a re-centring this time," said Mr Ho.

At its last twice-yearly meeting in October, MAS opted to retain the modest and gradual appreciation path for the S$NEER band, while "slightly" reducing its slope. No change was made to the width of the band and the level at which it is centred.

Credit Suisse's Michael Wan - who believes the probability of an easing stroke has risen following Monday's announcement - thinks a widened band is possible in April to account for more volatility. Even so, he believes a flattened slope could arise too - which would mean a shift to a zero appreciation stance.

But OCBC's Ms Ling, DBS economist Irvin Seah, and UOB's Francis Tan doubt that this will happen.

Said Mr Tan: "If they shock the market by adopting a neutral slope, people will be thinking: 'Wah, neutral you know?' This is hardly used except during recessionary times and periods of crisis . . . You could loosen your monetary policy, but your interest rate will go the other way and that will be quite tough on your homeowners and companies."

As for the chances of an off-cycle move before April, economists agree that this is highly unlikely. "At the end of the day, MAS wants to navigate monetary policy with at least a 'six-months-ahead' kind of outlook. The April decision has to be something they can carry through to October . . . They probably haven't made up their mind yet."

As for 2015's inflation performance, inflation eased to -0.5 per cent for the whole year, from 1 per cent in 2014, said the Department of Statistics. Noted DBS's Mr Seah: "This is Singapore's first full-year negative inflation since 2002 (-0.4 per cent) and also the lowest in 29 years (1986: -1.4 per cent)."

Unsurprisingly, the drag came from the housing and utilities (-3.5 per cent) and transport (-1.4 per cent) categories, which represent the first and third most heavy weights on the consumer price index.

Full-year core inflation - which excludes the costs of accommodation and private road transport - moderated significantly to 0.5 per cent, from 1.9 per cent in the preceding year.

For the month of December, inflation stood at -0.6 per cent year-on-year. The latest sub-zero print marked the 14th straight month of falling consumer prices - although this was slightly higher than November's -0.8 per cent. This was mainly due to a stronger pick-up in petrol costs and overall services prices, said MAS and MTI.

December core inflation rose marginally to 0.3 per cent from 0.2 per cent a month earlier, due to higher services inflation.

Overall services inflation picked up to 0.9 per cent in December from 0.7 per cent a month earlier, due to a faster pace of increase in holiday travel expenses and a smaller decline in telecommunication services fees.

Food inflation edged down to 1.5 per cent from 1.6 per cent in November, as increases in the prices of prepared meals such as hawker food moderated.

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