Economists expect MAS to stand pat in January review amid easing headline, core inflation

PRIVATE-SECTOR economists expect the Monetary Authority of Singapore (MAS) to keep monetary policy settings unchanged in January, after Singapore’s headline and core inflation both eased in November.

Headline inflation for the month fell to 3.6 per cent on the year, from the 4.7 per cent recorded in October, on account of a fall in private transport prices, data from MAS and the Ministry of Trade and Industry (MTI) showed on Tuesday (Dec 26). November’s print was also lower than the 3.9 per cent median forecast by private-sector economists polled by Bloomberg.

Core inflation, which excludes accommodation and private transport, also inched down to 3.2 per cent, a tick lower than the 3.3 per cent rise recorded the previous month, and in line with economists’ median estimate of 3.2 per cent. This was due to lower inflation for retail and other goods, food as well as electricity and gas, said MTI and MAS.

On a month-on-month basis, headline inflation was down 0.2 per cent in November, while core inflation was up 0.1 per cent.

Moody’s Analytics economist Denise Cheok still expects MAS to hold steady at January’s scheduled monetary policy meeting, as a relatively strong Singapore dollar would help keep inflation risks at bay.

While commodity prices have declined recently, the risks to imported inflation still remain, she noted. Additionally, geopolitical tensions, along with the drier-than-usual weather due to El Nino conditions, could keep core inflation elevated.

But while economists were in agreement that MAS would stand pat at the next meeting, they remained mixed on whether the central bank will ease, or further tighten, monetary policy for the rest of 2024.

Some expect the MAS to eventually ease monetary policy settings, from as early as the scheduled policy meeting in April.

“Short of another external shock – whether it is supply related or if labour market conditions remain far stronger, and therefore supportive of much stronger wage growth and services-related inflation – I think the next move for the MAS is to hold in January, and in April, possibly moving if they need to... towards a slight easing,” said CGS-CIMB economic adviser Song Seng Wun.

This is given the lagged effect of the global tightening cycle, which is likely to cause consumption and demand to ease slightly, as well as the broad trend of easing inflation, he added.

Moody’s Cheok also expects MAS to loosen monetary policy settings by the second half of 2024. “The current settings of the Singapore dollar nominal effective exchange rate (S$NEER) is significantly steeper and higher than pre-pandemic settings, and a stronger currency will dampen export demand.”

UOB economists Alvin Liew and Jester Koh also expect MAS to ease monetary policy settings – with a 50 basis point (bps) reduction of the S$NEER slope – as early as during the April policy meeting.

But there is a risk that the move could be delayed to the July meeting, “given the possible lagged transmission of earlier wage increases and elevated business costs into services inflation”, they said.

Other economists believe further tightening could be in the cards instead.

MAS’ signal at the last policy meeting in October that it would maintain a sufficiently tight and sustained appreciation stance could indicate that it is projecting an extended pause, said Standard Chartered Asia economist Jonathan Koh.

But Koh believes the risks are tilted towards a “slight bias towards further tightening – if needed – rather than loosening”.

Barclays economist Brian Tan’s base case is for MAS to leave monetary policy settings unchanged through 2025, but believes the risks have increased for a 50 bps increase in the slope of the S$NEER policy band.

“Stickier-than-expected core inflation will likely keep the central bank more concerned about inflation reigniting rather than extinguishing – further discouraging monetary policy easing,” he said in a research note.

In their statement, MAS and MTI kept to their inflation outlook for both 2023 and 2024. In 2023, headline inflation is expected to average around 5 per cent, and core inflation to around 4 per cent.

In 2024, headline inflation is expected to average between 3 and 4 per cent and core inflation between 2.5 and 3.5 per cent. Excluding the transitory effects of the upcoming goods and services tax (GST) hike to 9 per cent in January, headline inflation is projected to come in at between 2.5 and 3.5 per cent, and core inflation between 1.5 and 2.5 per cent.

Key CPI categories

Lower inflation was recorded for most categories in November.

Private transport inflation recorded the biggest fall, tumbling to 4.2 per cent from 11.7 per cent, as car prices rose at a much slower pace.

Retail and other goods inflation dipped to 1 per cent, from 1.6 per cent previously, largely due to a decline in medical goods and household durables prices as well as a smaller increase in personal care product prices.

Food inflation also nudged down slightly to 4 per cent, from 4.1 per cent, as the prices of prepared meals rose at a slower pace.

In contrast, services inflation inched up slightly to 3.5 per cent, from 3.4 per cent, as the rise in costs for outpatient services, recreational and cultural services as well as telecommunication services outpaced a decline in airfares.