Trade risks aside, Singapore central bank ready to tighten

A view of the Monetary Authority of Singapore (MAS) building in the downtown financial district in Singapore. — AFP pic
A view of the Monetary Authority of Singapore (MAS) building in the downtown financial district in Singapore. — AFP pic

SINGAPORE, April 11 — Singapore’s central bank is one step closer to tightening monetary policy this week.

A majority of economists surveyed by Bloomberg predict policy makers will look past the latest trade skirmishes between the world’s two largest economies and assess the city state’s growth outlook as solid and inflation healthy.

The Monetary Authority of Singapore, which uses the exchange rate as its main tool, has kept its policy unchanged since shifting to a neutral stance two years ago.

“Growth momentum is positive, global growth is actually good, and trade momentum from the start of the year has been quite good as well,” said Edward Lee, chief economist for South and Southeast Asia at Standard Chartered Plc in Singapore. While “certainly the risks have risen” on trade, “things are simply too accommodative at the moment.”

Of the 24 forecasts gathered from a Bloomberg survey and economists’ research notes, 15 predict the MAS will adjust its policy stance toward tightening. The rest see policy staying on hold.

The split shows how difficult the call might be. With 63 percent of the respondents seeing a tightening stance, the economists are more divided than at any time in three years.

Singapore should see another strong year for economic growth, stepping back only slightly from last year’s pace of 3.6 per cent, which was the fastest since 2013. A government report on Friday will probably reinforce that view, showing gross domestic product expanded 4.3 per cent in the first quarter from a year ago, according to a Bloomberg survey of economists.

A surge in exports last year generated demand that’s now spreading out to other industries, and an “ expansionary” budget in 2018 should provide additional support. Inflation has also remained within the central bank’s forecast range even as it picked up in April.

Singapore guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band. The MAS typically announces policy decisions twice a year, in April and October.

Sixteen economists in the Bloomberg survey see the MAS steepening the slope of the currency band from the current zero percent, indicating it would seek an appreciation in the Singapore dollar.

The US and China continue to lob tariff threats at each other, roiling financial markets and clouding the global trade outlook.

Chinese President Xi Jinping did his part yesterday to calm trade-war worries by reiterating a pledge to open up a range of industries to foreign investors and warning against returning to a “Cold War mentality” amid the disputes.

A hold by the MAS would be more in line with recent decisions by other central banks in the region. The Bank of Thailand voted 6-1 in a March 28 decision for no change in policy with below-target inflation and a surging currency.

The Philippines held its benchmark interest rate at a record-low 3 per cent on March 22, predicting inflation will remain inside its target band through 2019. Bank Indonesia also kept its benchmark rate unchanged on the same day amid subdued price growth. — Bloomberg

Related Articles