SINGAPORE’S central bank left monetary policy settings unchanged in October, extending the pause from its April meeting in line with market expectations. But it announced that it will shift to a quarterly monetary policy statement (MPS) schedule from 2024, with statements released in January, April, July and October.

This came as Singapore’s headline inflation was newly forecast to slow to 3 per cent to 4 per cent in 2024, and core inflation to 2.5 per cent to 3.5 per cent.

The Monetary Authority of Singapore (MAS) on Friday (Oct 13) said that it would 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.

“A sustained appreciation of the policy band is necessary to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability,” MAS added.

The previous change – the last of five consecutive moves, two being off-cycle adjustments – was in October 2022, when the mid-point of the S$NEER policy band was recentred higher to the prevailing level then, with no change to the band’s slope or width.

All 18 analysts polled by Bloomberg expected MAS not to take action in October. Some had noted the possibility of a surprise move, but were split on whether it would be to tighten or loosen policy.

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The decision came as Singapore’s gross domestic product (GDP) grew 0.7 per cent year on year in the third quarter, improving from the second quarter’s 0.5 per cent, based on flash estimates. Sequentially, the economy expanded 1 per cent, up from 0.1 per cent in Q2.

MAS said that for 2023, core inflation is projected to come in at around 4 per cent, unchanged from 2022. Headline inflation should average around 5 per cent, down from 6.1 per cent the year before.

Core inflation, which excludes accommodation and private transport, eased to 3.4 per cent year on year in August. Headline inflation cooled slightly to 4 per cent.

On Friday, MAS projected a further step-down of core inflation to between 2.5 per cent and 3 per cent year on year by this December, saying: “Inflation has slowed across a broad range of goods and services, including for non-cooked food, food services, travel-related and point-to-point transport services.”

Core inflation should be on a broad moderating trend in 2024, with favourable supply conditions tempering global prices for food commodities and intermediate and final goods, though crude oil prices have risen in recent months, the central bank added. Unit labour costs are expected to rise more slowly alongside the gradually cooling labour market.

Headline inflation, meanwhile, is expected to pick up slightly in the remaining months of 2023 amid higher certificate of entitlement (COE) premiums and petrol pump prices.

In 2024, private transport inflation may moderate for the year as a whole, alongside the expected increase in COE quotas. Accommodation inflation should also ease on the back of an expanded supply of completed housing units.

Extended pause?

Vishnu Varathan, head of economics and strategy at Mizuho Bank, said that MAS was “sufficiently hawkish between the lines” on GDP “to avert a knee-jerk slip” in the Singapore dollar, but distinctly less so on inflation.

HSBC Asean economist Yun Liu and head of Asia foreign exchange research Joey Chew said that MAS’ tone was balanced, instead of slightly doveish as expected.

Its growth outlook was significantly different from six months ago, they added. “There is still uncertainty, but it is about the timing and extent of the recovery, while the risk of a sharp global downturn, as flagged in the April MPS, has receded.”

MUFG senior currency analyst Michael Wan attributed this to an expectation of Fed rate cuts next year, even as US growth achieves a relatively soft landing; and stabilisation of China’s growth in 2024 on more stimulus.

For MAS’ January 2024 meeting, RHB acting chief group economist Barnabas Gan, Maybank economists Chua Hak Bin and Brian Lee, as well as UOB economist Jester Koh and senior FX strategist Peter Chia, expect policy parameters to remain unchanged.

This is as “inflation is expected to remain above historical norms next year while the growth outlook is brighter”, the Maybank duo said.

DBS economist Chua Han Teng and senior FX strategist Philip Wee said that further inflation moderation will unlikely be smooth. Import prices have bottomed out since May 2023, with upside risks from rallying oil prices, now complicated by the Middle-East conflict, they added.

They also flagged domestic inflationary measures, scheduled price increases and potentially resilient wage cost pressures, despite a softening labour market.

OCBC chief economist Selena Ling said that MAS may be on an extended-pause mode. She believes the balance of inflation risks is fairly weighted, but an easing in 2024 is not off the table, depending on the inflation trajectory, such as if core inflation decelerates faster than expected.

MUFG’s Wan expects the next move to be a lowering of the policy band’s slope: “SGD exchange rate valuations are quite expensive, and the S$NEER is already trading around 1.4 per cent above the mid-point, implying less upside from here.”

UOB expects a slight slope reduction in April 2024’s MPS.

Transparency and flexibility

Maybank’s Chua said that the shift to quarterly reviews, while welcome, is surprising: “MAS has always emphasised that monetary policy is the medium-term stance rather than short term, and preferred markets not to speculate on the short-term movements.”

The move “may be in response to the more volatile currency swings and frequent changes in other central banks’ policy rates”, said Maybank’s team. MUFG’s Wan noted that MAS “is looking to keep optionality into 2024, amid a more volatile and uncertain macro outlook”.

The recent cycle of tightening moves could reflect a “dynamically evolving” landscape, OCBC’s Ling explained, also flagging “idiosyncratic risks” such as the Israel-Hamas conflict. She added that some regional central banks have policy meetings more frequently than MAS.

Noting the shorter-than-usual statement on Friday, HSBC’s team said that more frequent statements could mean MAS can provide less forward guidance and be more nimble.