[ad_1]
The Monetary Authority of Singapore (MAS) announced on January 29 that it will continue to implement its existing exchange rate-based monetary policy, marking the third consecutive meeting without making any changes.
The decision is in line with market analysts’ forecasts and reflects the authorities’ commitment to economic stability.
The Monetary Authority of Singapore confirmed in its Monetary Policy Statement that the “current rate of appreciation” of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band will remain unchanged. In addition, the width and center level of the policy band will not change.
More information about OMY: Monetary Authority of Singapore expected to maintain policy in January 2024, experts say
Ahead of the scheduled policy review, all 13 analysts polled by Reuters had expected the decision. The MAS maintained the same monetary policy in two reviews in 2023, most recently recalibrating the midpoint of its policy range in October 2022.
Unlike many central banks that use interest rates to guide monetary policy, the MAS is unique in that it keeps the value of the Singapore dollar against the currencies of its major trading partners within a confidential range, known as the Singapore dollar nominal effective exchange rate (NEER). The MAS achieves this by modifying the slope, midpoint and width of the policy band.
Economic and inflation forecasts
Looking ahead, the Monetary Authority of Singapore is optimistic about Singapore’s economic outlook, predicting gross domestic product (GDP) growth of 1% to 3%. This positive forecast is supported by the recovery of the global electronics industry and the downward revision of global interest rate expectations, which may boost the manufacturing and financial sectors.
In addition, domestic industry growth is expected to return to pre-pandemic levels.
On the inflation front, the central bank expects core inflation, which excludes accommodation and private transport costs, to remain elevated early this year, partly due to a 1 percentage point increase in the goods and services tax (GST) and the “one-off” impact of a carbon tax increase.
Water prices are expected to rise in the second quarter as part of a phased approach to address rising production costs. Inflation in selected services such as public transport and healthcare is likely to remain elevated as prices adjust to higher costs.
However, the MAS expects core inflation to decline gradually, with a sharp drop expected in the fourth quarter and further declines next year. The central bank forecasts core inflation to average between 2.5% and 3.5% in 2024, in line with its previous estimate.
Excluding the impact of the GST hike, core inflation is expected to be between 1.5% and 2.5%.
“Sustained appreciation in the policy band will continue to dampen imported inflation and contain domestic cost pressures, thereby ensuring medium-term price stability,” the Monetary Authority of Singapore said.
Nonetheless, the central bank has lowered its overall inflation forecast to 2.5% to 3.5% from a previous range of 3% to 4%. The adjustment reflects a fall in certificate of residence (COE) premiums since November and an increase in the supply of permits this year compared to 2023. Excluding the impact of the GST rate, overall inflation is expected to be 1.5% to 2.5%.
The Monetary Authority of Singapore acknowledges that the inflation outlook could change in either a positive or negative direction.
“Additional inflationary pressures could come from shocks to global food and energy prices or domestic labor costs. However, unexpected weakness in the global economy could lead to a more rapid easing of cost and price pressures,” the report said.
Economists at Mizuho Bank and ABN Amro said the Monetary Authority of Singapore is likely to maintain current policy settings for the foreseeable future given ongoing concerns about persistent inflation and external geopolitical uncertainties.
Nicholas Mapa, senior economist at ABN Amro, expects the central bank is likely to maintain its current stance for at least one more meeting.
“However, if inflation eases in the second half of this year as expected, MAS may consider adjusting policy settings at its third or fourth meeting this year,” he added.
The meeting was the first time that the Monetary Authority of Singapore issued a policy statement in January, following the announcement that it would change the review schedule to quarterly. The change from a semi-annual review to a quarterly review is seen as a strategic move to remain agile in an increasingly unpredictable global environment. The authority will now conduct policy reviews in January, April, July and October.
More information about OMY: The Monetary Authority of Singapore maintains monetary policy unchanged and expects Singapore’s economy to gradually improve next year
[ad_2]
Source link
