Singapore: MAS raised policy slope – UOB

Economist at UOB Group Barnabas Gan, Senior FX Strategist Peter Chia and Rates Strategist Victor Yong assess the latest decision by the MAS.

Key Takeaways

“Based on the advance estimates by the Ministry of Trade and Industry (MTI), Singapore’s 3Q21 GDP expanded 6.5% y/y (+0.8% q/q sa), disappointing market estimates at 6.6% y/y (+1.1% q/q sa).”

“Policy makers kept their GDP growth outlook in 2021 at a range of 6-7% while recognising an “above trend” growth pace in 2022. Moreover, they cite that labour conditions will continue to tighten and the negative output gap is expected to close in 2022.”

“Singapore’s growth momentum has continued to strengthen materially since the start of 2021. Year-to-date, high-frequency data such as manufacturing and NODX supported the positive outlook.”

“Meanwhile, the MAS has slightly raised the slope of the S$NEER policy band, from zero percent previously. The width of the policy band and the level at which it is centred will be unchanged. The MAS cited that the ‘appreciation path for the S$NEER policy band will ensure price stability over the medium term while recognising the risks to the economic recovery’.”

“The surprise decision by MAS to tighten its policy this morning suggests that policymakers are increasingly cautious over inflationary pressures over the medium term. Barring any unexpected deterioration of economic conditions, we think that further tightening in April 2022 and beyond is possible to normalise policy stance to pre-pandemic levels. As such, we think that another ‘slight’ steepening of the policy band in April 2022 by another 0.5% may be possible, to bring the full gradient to 1.0% then.”