MAS stands pat at April monetary policy review, as expected

SINGAPORE’S central bank left its monetary policy settings unchanged in April, extending the pause for the fourth straight meeting, in line with market expectations.

The Monetary Authority of Singapore (MAS) also left its headline and core inflation projections unchanged: both are expected to average between 2.5 and 3.5 per cent this year.

MAS said on Friday (Apr 12) that it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to its width and the level at which it is centred.

“The Singapore economy is expected to strengthen over 2024, with growth becoming more broad-based,” it said. “The slightly negative output gap is projected to narrow further in H2 2024, even as underlying inflationary pressures gradually dissipate.”

Core inflation is expected to remain elevated in the earlier part of 2024, but “stay on its broadly moderating path and step down in Q4, before falling further into 2025”, MAS added.

Therefore, the current monetary policy settings remain appropriate.

“The prevailing rate of appreciation of the policy band is needed to keep a restraining effect on imported inflation as well as domestic cost pressures, and is sufficient to ensure medium-term price stability,” MAS said.

Edward Lee, chief economist for Asean and South-east Asia at Standard Chartered, said: “To us, this reads as ‘we cannot ease, but do not need to tighten further’.”

MAS’ previous statement in January, in comparison, read as “we do not need to tighten further”, he said.

The central bank had said then: “The sustained appreciation of the policy band will continue to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability.”

“If you were thinking ‘easing in July’, well, MAS is saying ‘maybe not’. If you were thinking ‘maybe a hint of some slope increase may be a risk’, then it’s a disappointment for you too,” Lee added.

Joey Chew, head of Asia foreign exchange research at HSBC, said: “The words ‘needed’ and ‘sufficient’ are key.” She added that MAS may practice “stealth easing”, in which it may have a hand in guiding the S$NEER slightly lower within the band. However, it clearly has no intention of actually easing policy settings.

Singapore’s monetary policy stance was last changed in October 2022, when the mid-point of the S$NEER policy band was recentred higher to the prevailing level then. No change was made to the band’s slope or width. This was the last of five consecutive tightening moves – two of which were off-cycle adjustments – which began in October 2021.

Since the central bank’s January review, the S$NEER has continued to strengthen in the upper half of the appreciating policy band, it said.

The decision came after February’s inflation readings recorded a surprise rebound.

But MAS “sounded slightly more confident” that core inflation was moderating than it had in the January monetary policy statement, said Chew.

Core inflation averaged 3.4 per cent on year in January and February. The increase from 3.3 per cent in Q4 2023 was lower than expected, MAS said.

It also said wage growth had eased, compared to January’s statement that it would ease, and that unit labour costs would increase at a “significantly” slower pace this year than in previous years, with “significantly” being a new addition, noted Chew.

Headline inflation, meanwhile, fell to 3.1 per cent year on year over the two months, from 4 per cent in the preceding quarter.

The Ministry of Trade and Industry on Friday announced that Singapore’s gross domestic product grew 2.7 per cent year on year in the first quarter of 2024, based on flash estimates.

This was an improvement from the previous quarter’s 2.2 per cent. On a sequential, seasonally adjusted basis, the economy expanded just 0.1 per cent, down from 1.2 per cent in Q4 2023.

The economy’s prospects should improve over the course of the year, the central bank added.

All 20 analysts polled by Bloomberg expected MAS not to take action in its April meeting, the second of its new quarterly schedule. Most of them expected the central bank’s tone to be relatively unchanged.

Continue to hold this year

Economists agree that MAS will likely stick to the status quo at its monetary policy reviews this year.

OCBC chief economist Selena Ling said: “The monetary policy easing window is open for H2 2024, but is data dependent.”

July or October’s reviews “may be fair game” if core inflation shows signs of subsiding earlier or more materially than anticipated, but is not OCBC’s current base scenario. 

Many major central banks are also slightly hesitant to ease monetary policy, given recent “bumpy and more buoyant” inflation prints, especially with the uptick in crude oil prices, she noted.

RHB acting group chief economist Barnabas Gan agreed that policy parameters will likely be unchanged in 2024, given the inflation risk and a resilient economic backdrop.

“The caveat to our base case will centre on an unexpected surge in global inflation,” he added. “Should that scenario occur, we think the balance of risks is tilted towards a policy tightening by MAS in the quarters ahead.”

Based on StanChart’s S$NEER model, Lee said the immediate reaction to MAS’ statement might have been that it felt slightly hawkish, “but upon closer examination, the tone was probably assessed to be relatively neutral to even slightly dovish at the margin”.

He believes that the Singdollar policy will remain unchanged in 2024 “and bias may slowly build for some easing”.

But he does not anticipate that the Singapore dollar will depreciate enough “to outweigh the positive carry from the slope appreciation of 1.5 per cent per annum”.