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Singapore Monetary Policy January 2024

Singapore: MAS maintains the S$NEER’s prevailing rate of appreciation in January

At its quarterly monetary policy meeting held on 29 January, the Monetary Authority of Singapore (MAS) maintained the prevailing rate of appreciation of the Singapore dollar’s nominal effective exchange rate (S$NEER). The Bank also kept the width of the policy band and the level at which it is centered unchanged.

The MAS stood pat in January for the third consecutive meeting due to lingering inflation. MAS core inflation, which excludes the cost of accommodation and private transport, declined by less than the Authority had expected in Q4 2023. It expects MAS core inflation to rise further in the first part of the year due to the impact of January’s goods and services tax hike, a higher carbon tax and increased water prices. Price pressures are then seen declining by Q4 2024. As such, the MAS deemed it necessary to maintain current monetary conditions “to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability”.

In its communique, the Authority did not provide explicit forward guidance. Similar to October’s meeting, the MAS sees risks to inflation as broadly balanced: Shocks to global costs for food and energy and unexpectedly high wage growth pose upside risks, while an unexpected global economic downturn poses a downside risk. As such, the MAS will continue to balance risks to both inflation and domestic economic growth, with most analysts expecting policy easing to start later this year.

The next monetary policy meeting will be held in April.

DBS analysts Chua Han Teng and Philip Wee commented on the outlook:

“We maintain the view for the MAS to slightly decrease the slope of its policy band in the second half of the year, aligning with our call for the Fed to cut rates by 100 bps. Moreover, we expect Singapore’s inflation to average lower in 2024 vs 2023, even though it is likely to be bumpy in the near-term.”

Analysts at the EIU commented on risks that may affect MAS decisions this year:

“A regional escalation of the Israel-Hamas conflict would result in significant price surges for oil and gas, as supply chains around the Red Sea would be severely affected. This would lead to an acceleration in domestic inflation, prompting the MAS to tighten monetary policy further. Alternatively, a hard landing for the global economy would have a negative impact on Singapore’s trade-driven economy. In this case, we would expect the central bank to loosen monetary settings to support the economy, as price pressures would ease more quickly than expected.”

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