MAS maintains unchanged monetary policy for third consecutive time

The Monetary Authority of Singapore (MAS) on Monday (29 January) announced that it will adhere to its exchange rate-based monetary policy, maintaining the status quo for the third consecutive meeting, aligning with market expectations.

As outlined in its monetary policy statement, the Singapore central bank affirmed its commitment to “maintain the prevailing rate of appreciation” within the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

The policy band’s width and centred level remain unaltered, with no adjustments made in this regard.

Monetary policy remained unchanged during the two policy reviews conducted in 2023, and the most recent adjustment – a re-centering of the mid-point of the policy band – occurred in October 2022.

Looking ahead, MAS provided its economic outlook, anticipating a positive trajectory for the Singapore economy in the coming year.

Gross Domestic Product (GDP) growth is forecasted to range between 1 and 3 per cent. The expected upswing in the global electronics cycle and the projected decline in global interest rates are anticipated to bolster the recovery in the manufacturing and financial sectors.

Simultaneously, growth in domestic-oriented sectors is expected to normalize towards pre-pandemic rates.

In its policy review statement, MAS expressed confidence in the strengthening of the Singapore economy in 2024, foreseeing more diversified growth across various sectors, barring unforeseen global shocks.

Addressing inflation, the central bank foresees core inflation, excluding accommodation and private transport costs, to remain elevated in the early part of the year.

The first quarter is expected to see a rise in consumer prices due to a “one-off” impact from the 1-percentage-point increase in the Goods and Services Tax (GST) and the hike in carbon tax.

Additionally, water prices will increase in the second quarter.

Certain service components, including public transport and healthcare, may experience sustained inflation as less frequently-adjusted prices catch up with higher cost levels.

However, MAS emphasized that core inflation, a key indicator for the central bank, is projected to gradually decline, stepping down by the fourth quarter and further in the following year.

“Accordingly, current monetary policy settings remain appropriate. The sustained appreciation of the policy band will continue to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability.”

While maintaining an average inflation gauge of 2.5 to 3.5 per cent for 2024, unchanged from previous estimates, MAS adjusted its overall inflation estimates to a range of 2.5 to 3.5 per cent, down from the earlier 3 to 4 per cent range.

This revision is attributed to declines in the certificate of entitlement (COE) premiums since November and a larger COE supply in 2024 compared to the previous year.

Excluding the impact of the GST rate increase, headline inflation is expected to be in the range of 1.5 to 2.5 per cent.

Recognizing both upside and downside risks to the inflation outlook, MAS highlighted potential shocks to global food and energy prices or domestic labor costs that could induce additional inflationary pressures.

Conversely, an unexpected weakening in the global economy could lead to a faster easing of cost and price pressures.

The central bank emphasized its commitment to closely monitor global and domestic economic developments, remaining vigilant to both inflation and growth risks.

This marks the inaugural January release of the MAS scheduled monetary policy statement, following the announcement made last year to transition from a semi-annual to a quarterly schedule in 2024.

Under this revised framework, monetary policy assessments will now take place in January, April, July, and October, expanding the review frequency from the previous semi-annual schedule that only included April and October.