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Quick takes: Slight easing by MAS keeps door open for further action
AGAINST a backdrop of lacklustre growth, the Monetary Authority of Singapore (MAS) "slightly" reduced the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band in its half-yearly October decision on Monday, while keeping the width and centre of the band unchanged.
This comes after the MAS held policy steady in April, which in turn followed two consecutive slight increases in the pace of Singdollar appreciation in 2018.
Here are some quick takes from economists on the central bank's latest move:
UOB Global Economics and Markets Research
"The MAS has kept its growth outlook unchanged for GDP (gross domestic product) to come in at around the mid-point of zero to 1 per cent in 2019 and for it to improve 'modestly' in 2020. However, official rhetoric surrounding inflation has turned relatively softer, with core inflation now expected to print at the 'lower end' of the 1 to 2 per cent range, compared to the previous tone which cited core inflation to come in at the 'lower half'. Headline inflation has also been downgraded to 'around 0.5 per cent', from the previous expectation for it to 'average 0.5 to 1.5 per cent' in 2019."
DBS Group Research - FX strategist Philip Wee and rates strategist Eugene Leow
"The decisions at this morning's Singdollar policy review were broadly in line with expectations. According to our model, the band should start appreciating at a pace of 0.5 per cent per year versus 1 per cent previously. The central bank has kept the door (open) for another easing should the already weak growth/inflation outlook deteriorate significantly."
Barclays - analysts Brian Tan, Ashish Agrawal and Abbas Keshvani
"The MAS eased FX (forex) policy, reducing the slope of the official S$NEER policy band 'slightly', as we expected. However, the slope still appears to be positive – the MAS did not describe policy as 'neutral' as a result of the adjustment. We believe this implies the MAS reduced the slope by 50 bp (basis points) to an estimated 0.5 per cent, in line with our view and consensus expectations.
"We had argued that the MAS would ease FX policy because of the storm clouds gathering over the global outlook, the domestic economy remaining weak and the output gap likely turning negative... However, we had expected the MAS to reduce the slope in a gradual fashion, as it was likely to project a pickup in 2020 GDP growth and the outlook was shrouded in uncertainty, implying the potential for positive surprises that could force the MAS to reverse course in 2020 if it eased more aggressively this time. The policy statement suggests these were indeed key considerations – the MAS expects GDP growth to 'improve modestly' in 2020 from around 0.5 per cent in 2019, but also noted that 'this projection is subject to considerable uncertainty in the external environment'.
"Overall, while our base case is for the MAS to remain on hold in April 2020, we view the risks as being tilted in favour of a further 50 bp slope reduction to zero per cent."
CMC Markets - analyst Margaret Yang
"A mild monetary easing is probably insufficient to boost manufacturing and exports in the short term. But the central bank also said it is 'prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly'."
ANZ - senior strategist for Asia Irene Chung
"Importantly, the central bank said in the policy statement that the output gap has turned slightly negative. With the central bank expecting growth to improve only modestly in 2020 and core inflation not seeing a pickup, further easing to a neutral policy is possible at the next policy review in April 2020. The central bank said today that it is 'ready to recalibrate' monetary policy should such a need arise."
OCBC Bank - head of treasury research and strategy Selena Ling
"Notably, the output gap has turned slightly negative and is expected to persist into 2020, which should keep inflationary pressures subdued. In fact, MAS noted that the output level will remain 'below potential' in 2020 and MAS 'is prepared to recalibrate monetary policy should prospects for inflation and growth weakness significantly'. This clearly illustrates that the current monetary policy easing to flatten the S$NEER slope is a calibrated move, given that currently there is no technical recession or full-year recession. That said, the window remains open for another measured easing come April 2020 should Singapore’s output remain below potential."
Citi - analysts Kit Wei Zheng, Ang Kai Wei and Gaurav Garg
"The explicitly dovish statement – with MAS prepared to recalibrate policy if prospects worsen – could be interpreted as conditional forward guidance towards possible shift to a zero slope April 2020, and hence was likely part of the MAS’s communication toolkit to 'steer the NEER' lower within the policy band.
"More detailed assumptions and forecasts contained in the macroeconomic review on Oct 30 will be closely watched. Should the monetary policy contain overly aggressive forecasts for a rebound in GDP and inflation, this could be construed as lowering the hurdle for downside data surprises, and thus paving the way for a shift towards a zero slope in April 2020."