MAS leaves monetary policy settings unchanged; expects full-year GDP at 2-3%
The central bank lowers its full-year forecast for headline inflation, but keeps it unchanged for core inflation
SINGAPORE’S central bank left its monetary policy settings unchanged on Friday (Jul 26) for the fifth straight meeting, in line with market expectations, and said it expects gross domestic product growth to come in at the higher end of the official forecast range.
“GDP growth is likely to come in closer to its potential rate of 2 to 3 per cent for the full year,” said the Monetary Authority of Singapore (MAS). This is at the higher end of the Ministry of Trade and Industry’s forecast range of 1 to 3 per cent.
MAS also lowered its full-year forecast for headline inflation to a range of 2 to 3 per cent, but maintained its core inflation forecast range at 2.5 to 3.5 per cent.
MAS said that it will maintain the prevailing rate of appreciation of the Singapore nominal effective exchange rate (S$NEER) policy band, with no change to its width and the level at which it is centred.
Singapore’s economy is expected to strengthen over the rest of 2024, with the slight negative output gap closing by year-end, said MAS.
“Barring renewed shocks to costs, core inflation should step down more discernibly in Q4 and fall to around 2 per cent in 2025.”
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Against this backdrop, current monetary policy settings remain appropriate, said the central bank. “The prevailing rate of appreciation of the policy band will keep a restraining effect on imported inflation as well as domestic cost pressures, and ensure medium-term price stability.”
MAS said it will “closely monitor global and domestic economic developments, and remain vigilant to risks to inflation and growth”.
Eighteen out of 19 analysts polled by Bloomberg had expected MAS not to take action during the July review – the third of its new quarterly schedule; the remaining analyst expected a reduction of the policy band slope. Most of them also expected the central bank’s tone to be unchanged.
SEE ALSO
The decision comes after June’s inflation readings came in softer than expected. Core inflation, which excludes accommodation and private transport, was at 2.9 per cent, and headline inflation fell to a three-year low of 2.4 per cent.
Growth and inflation outlook
Giving its growth outlook, MAS noted that economic activity among Singapore’s major trading partners has remained “broadly stable” in recent months.
“In the quarters ahead, global final demand should gain from the anticipated lowering of interest rates and continuing investments in information technology,” it added.
But this is subject to uncertainty, said MAS, such as the pace and timing of monetary policy easing and the impact of geopolitical and trade conflicts on confidence and production costs.
As for inflation, MAS expects core inflation to “step down more discernibly” in the fourth quarter and into 2025.
Even as some shipping rates have gone up, global producer prices have risen only modestly thus far, it noted. Global crude oil prices have also fallen from their recent peak in April, while the prices of most food commodities, as well as intermediate and final goods, have been stable.
Domestic unit labour costs should also rise at a “significantly slower rate” this year than in the last two years, as the labour market becomes less tight and productivity picks up.
Amid moderate imported inflation and easing domestic cost pressures, the seasonally-adjusted quarter-on-quarter rate of core inflation declined to an annualised rate of 2.1 per cent in the second quarter, said MAS.
“The sequential pace of price change, which better captures the most recent inflation in the economy, is expected to be lower in the second half of 2024 compared to H1.”
But both upside and downside risks to inflation remain. The pace of domestic labour cost increases could reaccelerate if aggregate demand turns out stronger than expected, said MAS. And should geopolitical tensions intensify, this could add to imported costs.
In contrast, if global interest rates stay higher for longer than expected, external demand could weaken and dampen Singapore’s growth momentum. “This in turn would induce a faster pace of easing in cost and price pressures.”
Singapore’s monetary policy settings were last changed in October 2022, when the midpoint of the S$NEER policy band was re-centred higher to the prevailing level then. No change was made to the band’s slope or width.
That was the last of five consecutive tightening moves – two of which were off-cycle adjustments – which began in October 2021.
Copyright SPH Media. All rights reserved.
