MAS maintains status quo on monetary policy, anticipates gradual improvement in Singapore’s economy for the next year

SINGAPORE: The Monetary Authority of Singapore (MAS) decided to maintain its exchange rate-based monetary policy on Friday (13 Oct), aligning with market forecasts and marking the second instance of such maintenance this year.

As outlined in its half-yearly monetary policy statement, the Singaporean central bank affirmed its commitment to uphold the existing rate of appreciation within the Singapore dollar’s nominal effective exchange rate (S$NEER) policy band.

Notably, there were no alterations made to the width or central level of the policy band.

MAS’s decision comes amidst a backdrop of global economic moderation and uncertainties.

Despite the recent fluctuations in the global economic landscape, MAS remains focused on stabilizing the local economy and ensuring sustainable growth for the nation.

However, it cautioned that the recovery might be weaker than expected, given the uncertain global economic climate.

Global economic activities have seen a slowdown, reflecting weaker growth in major economies such as the Eurozone and China. However, the resilience displayed by the US economy has provided a glimmer of hope for global stability.

“Nevertheless, the risk of a sharp global downturn, precipitated by financial vulnerabilities, has receded compared to earlier in the year. ”

In the local context, the Singaporean economy has witnessed a modest expansion, driven primarily by the manufacturing sector, even as certain domestic-oriented sectors experienced a slight downturn.

Despite this mixed performance, MAS remains cautiously optimistic about the prospects for the Singaporean economy, anticipating gradual improvements in the latter half of 2024.

“Against the external outlook, prospects for the Singapore economy are muted in the near term but should improve gradually in H2 2024. ”

“MAS expects Singapore’s GDP growth in 2023 to come in at the lower half of the 0.5–1.5% forecast range. For 2024, growth is projected to come in closer to its potential rate, with the output gap remaining slightly negative.”

The statement also sheds light on the inflation outlook, indicating a general deceleration in both MAS Core Inflation and CPI-All Items inflation.

Projections suggest that inflation is expected to trend downwards, albeit with certain risks associated with global food and energy prices, as well as domestic labor costs.

“MAS Core Inflation is projected to slow to an average of 2.5–3.5% for the year as a whole. Excluding the impact of the increase in the GST rate in January, core inflation is forecast at 1.5–2.5%.”

CPI-All Items inflation is projected to average between 3.0–4.0% in 2024. Private transport inflation should moderate for the year as a whole, alongside the expected increase in COE quotas.

MAS noted that accommodation inflation should also ease as the supply of completed housing units expands. Excluding the impact of the increase in the GST rate in January, headline inflation is forecast at 2.5–3.5%.

” There are both upside and downside risks to inflation. Shocks to global food and energy prices or domestic labour costs could bring about additional inflationary pressures. ”

“However, a sharper-than-expected downturn in the global economy could induce a general easing of cost and price pressures.”

To maintain stability and ensure price equilibrium in the medium term, MAS emphasized the necessity of a sustained appreciation within the existing policy band.

This strategic approach aims to mitigate the impact of imported inflation and to manage potential domestic cost pressures effectively.

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

Starting in 2024, MAS will transition to a quarterly monetary policy statement schedule, releasing statements in January, April, July, and October.

This marks a departure from its current half-yearly practice, where statements are traditionally issued in April and October.

The decision is in line with MAS’ ongoing commitment to improving the dissemination of monetary policy information, reflecting its dedication to maintaining a medium-term focus in formulating policies to ensure a sustained environment of low and stable inflation.

The upcoming monetary policy statement is scheduled for release in late January 2024.