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Singapore Monetary Policy October 2023

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

At its biannual monetary policy meeting held on 13 October, the Monetary Authority of Singapore (MAS) maintained the prevailing rate of appreciation of the Singapore dollar’s nominal effective exchange rate (S$NEER). Moreover, the Bank kept the width of the policy band and the level at which it is centered unchanged.

The MAS held fast in October, as core inflation continued to moderate, falling to 3.4% in August from January’s 5.5% peak. According to official projections, price pressures excluding transport and accommodation should drop further to 2.5–3.0% by December, with the Authority deeming the current policy stance “sufficiently tight” to support the disinflationary trend. With regards to economic activity, it sees 2023 growth at the lower end of the 0.5–1.5% forecast range on weaker external demand. Additionally, although it projected a recovery among Singapore’s major trading partners next year, the Authority remained wary amid significant uncertainty and projected domestic GDP growth to inch closer to potential but remain slightly below it next year.

In its communique, the Authority did not provide explicit forward guidance. Nevertheless, it stated that risks to inflation are broadly balanced: Shocks to global costs for food and energy, as well as unexpectedly high domestic labor costs, could reignite price pressures, while a steeper-than-anticipated global economic downturn could help cool inflation faster than projected. As such, the MAS will continue to balance risks to both inflation and domestic economic growth, with most analysts expecting a prolonged pause in its policy cycle.

Meanwhile, the Authority announced it would shift to a quarterly monetary policy schedule in 2024. Increased meeting frequency will aid monetary policy communication and support a more agile policy response against a backdrop of rapidly shifting domestic and foreign risks.

The next monetary policy meeting will be held in January 2024, with the precise date announced on 2 January.

DBS analysts Chua Han Teng and Philip Wee commented on the outlook: “We reckon that the [S$NEER] policy band can keep to its present appreciating pace into 2024, Singapore’s version of the global pivot towards keeping rates “high for longer.” At the time of writing, the [S$NEER] was less than 0.4% below the band’s ceiling.” Analysts at the EIU said: “We believe that the tightening cycle that the MAS began in October 2021 has ended, particularly as the expected pause in U.S. tightening increases alleviate pressure on the U.S.-Singapore interest-rate differential. We expect the MAS to keep rates on hold until the second half of 2024, as policymakers assess the trajectory of core inflation.”

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