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MAS seen keeping monetary policy steady in Oct, small minority expect easing: Reuters poll

Singapore's central bank will probably hold off from further monetary easing at its next policy review in October, a Reuters poll showed, with headline and core inflation expected to pick-up next year.

[SINGAPORE] Singapore's central bank will probably hold off from further monetary easing at its next policy review in October, a Reuters poll showed, with headline and core inflation expected to pick-up next year.

Most analysts see the central bank keeping policy steady, even after the economy shrank unexpectedly in the second quarter and headline consumer prices in June fell from a year earlier for the eighth straight month, according to the survey.

Fourteen of 16 analysts polled by Reuters said they expect the Monetary Authority of Singapore (MAS) to leave its policy settings unchanged in October, when it holds its last scheduled policy review for 2015."The call on October's monetary policy decision now rests on a razor's edge," Vaninder Singh, South East Asia Economist for RBS, said in a recent research note."However, we are retaining our call of 'no change' for now. We expect a rebound to above 1 per cent for both headline and core inflation next year," he added.

Two analysts in the survey said they expect the MAS to ease policy in October by reducing the slope of the Singapore dollar Neer's policy band.

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).

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While it is a close call, it seems more likely that the MAS will ease policy in October rather than stand pat, said Amy Yuan Zhuang, senior analyst at Nordea Bank in Singapore."If I have to choose one side, I would say probably 55-60 percent for a slope reduction in October." "If oil prices take a dip again, due to a China slowdown and the Iran nuclear deal, there will be more downward pressure on inflation than upwards," she added.

The results were broadly similar to a Reuters poll in late June, when 13 of 14 analysts said they expected the MAS to keep policy unchanged in October. One analyst expected policy easing.

The latest Reuters poll showed that headline consumer prices were expected to rise anywhere from 0.5 per cent to 2.0 per cent in 2016. The core inflation gauge, which excludes housing and private transport costs and is the focus of MAS policy, is expected to rise 1.0 per cent to 2.0 per cent next year.

The MAS said last week that Singapore was not facing deflation even though headline consumer price inflation is likely to stay negative throughout 2015, adding that the current monetary policy settings were appropriate for ensuring medium-term price stability.

The MAS also said the official 2015 growth forecast of 2-4 per cent was now being reviewed.

If the official growth forecast is downgraded by more than half a percentage point, that is likely to prompt the MAS to ease monetary policy, said Tim Condon, head of research, Asia for ING Bank in Singapore.

Analysts at ING are reviewing their forecast, which is for the MAS to keep policy on hold in October.

Most analysts said they were not expecting any further off-cycle policy changes by the MAS in 2015.

There might be an off-cycle move if risks posed by an economic slowdown in China or risks stemming from the euro zone were to increase sharply, said Vishnu Varathan, senior economist for Mizuho Bank in Singapore. He put the chances of such an off-cycle move at 10 per cent.

The central bank had surprised investors in January by easing monetary policy in an unscheduled policy statement, saying the inflation outlook had "shifted significantly" due to a collapse in oil prices.

In April, at the first of its twice-yearly regular policy reviews, the MAS maintained its policy of a "modest and gradual "appreciation of the Singapore dollar, keeping the slope, width and mid-point of the policy band unchanged.


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