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MAS rules out off-cycle policy meeting, economists mixed on stimulus

SINGAPORE’S central bank will not move outside its usual schedule to change its monetary policy, chief economist Edward Robinson confirmed in a briefing early on Tuesday.

Despite the latest downgrade to Singapore’s full-year economic forecast, Mr Robinson - who is also deputy managing director of economic policy at the Monetary Authority of Singapore (MAS) - said that the central bank’s monetary policy stance has not changed since its last decision.

“MAS is not considering an off-cycle policy meeting,” Mr Robinson told reporters.

“We will be carefully monitoring developments and will take them into account in our assessment of the inflation and growth outlook for the Singapore economy at our next scheduled monetary policy review in the middle of October.”

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In its April meeting, the MAS had affirmed core inflation of between 1 per cent and 2 per cent and stood pat on the “modest and gradual appreciation path” of the Singapore dollar in April.

But it has since adjusted its expectations for the labour market, on the back of newfound softness on the manpower front, as private economists observed last month.

“The central bank subtly softened its language on labour market conditions - suggesting they have ‘held up’, compared to ‘remained firm’,” HSBC economist Liu Yun wrote on July 23.

“We have previously noted that a deterioration in the labour market would reinforce upcoming policy stimulus on both the monetary and fiscal fronts.”

Terence Ho, divisional director of manpower policy and planning at the Ministry of Manpower, said at Tuesday's briefing that: "Going forward, given the headwinds mentioned on the economic front, we do expect some upward pressure on unemployment rates and also retrenchments.

“So we’re monitoring the situation very closely.”

When asked for more details on the expected hit to jobs, Mr Ho said: “I can’t give a sort of very precise forecast on how these rates will increase, but I think a lot will depend on the economic situation.”

He earlier noted that July's advance labour market figures showed the overall unemployment rate steady at 2.2 per cent, as at end-June, against the previous quarter, while unemployment for Singapore residents rose from 3 per cent to 3.1 per cent. Net job growth slowed to 3,300 additions, compared with 13,400 in the first quarter.

“At this point, based on the preliminary data for (the second quarter), as we know, total employment continued to grow but at a slower pace compared to the previous quarter in the year before. And there’s been a creeping-up of unemployment rates for residents and citizens,” said Mr Ho.

“In the meantime, retrenchments fell, so that’s just that companies are not really laying off so many workers - but, rather, exercising more caution in hiring," he said.

Selena Ling, head of treasury research and strategy at OCBC Bank, said in a note that any deterioration in the local labour market “is likely to be gradual rather than knee-jerk”, especially with foreign worker quotas in the services sector to be tightened in 2020.

Also, the impending foreign worker quota cuts “could still keep MAS wary of underlying cost pressures”, Citi analysts Kit Wei Zheng and Ang Kai Wei said in a report.

Meanwhile, market watchers widely expect the MAS to pull back on the currency reins at its October monetary policy meeting.

Barclays economist Brian Tan wrote: “All told, we think the economic outlook will likely be darker by October... which should also portend weaker inflation pressures.”

But the Citi researchers warned against expectations of aggressive Singdollar easing, as they noted that “fiscal stimulus remains the first line of defence”.

Analysts were also mixed on prospects of stimulus injections amid the latest headwinds.

OCBC’s Ms Ling said a rescue package “is likely forthcoming, possibly in the form of targeted help for businesses, especially (small and medium-sized enterprises), and workers”, including in affected industries such as electronics manufacturing and wholesale and retail trade.

Such a view was shared by Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye, who also suggested that the authorities defer fresh foreign labour quota cuts that are set to take effect in 2020, as well as relax property market cooling measures.

Still, Mr Tan from Barclays expects the regulators to wade back into the property market if private home prices, which have started to increase, pick up further.

“We doubt the government will sit on its hands if property prices continue to rebound despite the cooling measures imposed in July 2018, especially when GDP growth is under greater pressure now compared with last year,” he said. “An economic slowdown is unlikely to deter the government from trying to cool the housing market.”

And DBS senior economist Irvin Seah, who is looking to “more accommodative” monetary and fiscal policies, said that a stimulus package will likely come in next February’s Budget 2020, rather than in the near term.

“The economy is not at risk of a full recession yet,” he said. “The government can afford to keep its powder dry and be more calibrated on the policy front at the moment.”