SINGAPORE’S central bank has left monetary policy settings unchanged for the first time in more than a year, contrary to market expectations of a tightening.

The Monetary Authority of Singapore (MAS) on Friday (Apr 14) said it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

“There will be no change to its width and the level at which it is centred. This policy stance will continue to reduce imported inflation and help curb domestic cost pressures,” the central bank said in its half-yearly monetary policy statement.

This is the first time MAS is standing pat after five consecutive tightening moves since October 2021.

Eleven out of 17 analysts polled by Reuters had expected some form of tightening, although they were split on the levers that would be adjusted.

This comes as Singapore’s gross domestic product (GDP) grew just 0.1 per cent year on year in the first quarter, according to flash estimates, lower than the 0.6 per cent growth private-sector economists polled by Bloomberg were expecting. Sequentially, the economy contracted 0.7 per cent.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Meanwhile, Singapore’s core inflation, which excludes accommodation and private transport, remained at a 14-year high of 5.5 per cent in February. Headline inflation had cooled slightly to 6.3 per cent year on year in the same period.

“While inflation is still elevated, MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of MAS’ monetary policy tightening are still working through the economy and should dampen inflation further,” the central bank said.

The official inflation forecast for the year remains at 3.5 to 4.5 per cent for core inflation, and 5.5 to 6.5 per cent for headline inflation.

Core inflation is projected to reach around 2.5 per cent year on year by the end of 2023, MAS said.

It added that when the impact of the goods and services tax hike is excluded, core inflation would be even lower and closer to the historical average.

Economists noted that MAS comes across as “dovish” in its latest statement.

“This is reminiscent of the October 2012 policy meeting, when CPI (consumer price index) was tipped to ease as well from elevated levels.” said OCBC chief economist Selena Ling.

In its statement, MAS noted that Singapore’s imported inflation, which is already negative, should fall further alongside lower commodity prices and stronger S$NEER, barring fresh shocks to global supply.

It added that domestic wage growth should also ease as labour demand moderates, especially in sectors more exposed to international trade and finance.

Standard Chartered (StanChart) economists said several factors suggest the MAS is “very comfortable in wait-and-see mode”.

They noted that the central bank had assessed current monetary policy parameters to be “sufficiently tight and appropriate for medium-term price stability” and sounded “more confident” that core inflation would fall by the end of this year.

The focus on the economic slowdown is also “clearer” this time, said the StanChart team.

With “intensifying risks to global growth”, MAS warned of a “deeper than anticipated” domestic economic slowdown, even as it reiterated projections of a below-trend GDP growth this year.

RHB senior economist Barnabas Gan said the MAS’ statement likely marks the end of Singapore’s hiking cycle, with the caveat that there are no renewed inflation risks stemming from an unexpected exacerbation of geopolitical tensions and intensified supply chain congestions. These, he said, may prompt policymakers to revisit further policy tightening to ensure price stability.