Singapore’s MAS to tighten policy ‘very slightly’ as inflation risks persist

Singapore’s central bank will likely deliver another incremental round of monetary tightening, to keep a lid on inflation risks from oil and the artificial-intelligence (AI) boom.

Seventeen out of 20 economists surveyed by Bloomberg expect the Monetary Authority of Singapore (MAS) to make the slope of its policy band steeper at its quarterly meeting on Wednesday, while three predicted no change.

The MAS, which uses the exchange rate as its main policy tool rather than interest rates, has steadily tightened the settings this year.

It increased the so-called slope in April — a move that allows faster appreciation of the currency — and did so again “very slightly” in July.

Many analysts interpreted the latter action as a 25-basis point adjustment, half the size of the usual ones.

The trade-reliant nation finds itself at the heart of the two major forces shaping the global economy this year.

Costly energy imports are pushing up prices across the board, while the AI wave has driven faster-than-expected growth — both of which threaten to keep inflation elevated for longer.

“Monetary policy tightening would be a forward-looking response to renewed energy and food pressures and broadening import-cost pass-through,” according to Maybank Securities Pte Ltd’s Chua Hak Bin and Brian Lee.

Core inflation — the gauge closely watched by the MAS — climbed to a two-year high of 2.2% in August, within the central bank’s 1.5%-2.5% forecast range for the year.

However, public transport fares are due to rise 7% in December, well above last year’s pace.

While electricity and natural gas fees are set to decline this quarter, Bank of America Corp sees a sharper rebound in the new year after the run-up in global energy costs.

“It is the inflation tail, rather than the hump, that warrants closer attention,” wrote BofA economists Kai Wei Ang and Rahul Bajoria.

Both BofA and Maybank see further MAS moves in January if price pressures don’t recede, which would make it Singapore’s longest tightening cycle since 2022.

The MAS was the first mover among Asia’s central banks this year, after the US and Israel attacked Iran and global energy prices shot through the roof.

Global peers have since followed in earnest, as the El Niño weather disruptions and a global bond selloff added to pressures.

Singapore will also release Wednesday preliminary third-quarter gross domestic product data, which will likely show growth slowed to 5.1% after a standout June quarter driven by electronics exports.

Retail sales data released last week showed a contraction in some areas, like motor-vehicle parts and food and beverages.

Still, the MAS expects Singapore’s economy to expand between 4.5% and 5.5% this year, a robust pace by historical standards.

“Stronger growth and the broader pass-through of imported costs continue to support further tightening, although the expected moderation in inflation in the fourth quarter and mixed growth signals argue for another smaller adjustment,” Chew Khai Yen and Michelle Chia at CIMB Bank Bhd. wrote in a report.

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