Singapore's MAS May Hold Off on Easing Despite Low Inflation
Sign up for Global Macro Playbook: Stay ahead of the curve on global macro trends.
Singapore's Monetary Authority of Singapore (MAS) may hold off on easing monetary policy at its January review, despite slowing inflation, as the central bank seeks to assess the impact of incoming U.S. President Donald Trump's policies, analysts told Reuters.
This comes as data next week, potentially the last inflation reading before the MAS's February policy review, is expected to show core inflation steady at October's three-year low of 2.1%, according to a Reuters poll. The MAS has previously forecast core inflation to be around 2% in the fourth quarter.
While slowing inflation has created room for easing, analysts suggest the MAS may prefer to mirror the U.S. Federal Reserve's approach by waiting to observe Trump's actual policies before making any adjustments.
"Chances are the MAS will want to mirror the U.S. Federal Reserve in basing its monetary policy decisions on U.S. President-elect Donald Trump's actual policies rather than speculating on potential changes before his inauguration," said DBS economist Chua Han Teng to Reuters.
Singapore manages monetary policy by adjusting the Singapore dollar's nominal effective exchange rate (S$NEER) against a basket of trading partners' currencies. This involves adjusting the slope, midpoint, and width of the policy band.
A recent MAS survey found that while inflation has moderated, the number of economists expecting a January easing via a reduction in the S$NEER slope has fallen to about one-third from half in the previous survey.
Eugene Tan of Moody's Analytics believes the MAS will wait for core inflation to dip below 2% for several months before easing, noting that a later move would also allow the central bank to assess the impact of Trump's trade policies.
However, Maybank economist Chua Hak Bin anticipates the MAS to reduce the S$NEER slope at the January review, citing expectations of inflation falling below 2% soon and growth moderating to 2.6% in 2025.
"Disruptions to global trade flows, and a diversion of China's excess capacity to the rest of the world because of Trump's tariffs will be a deflationary shock and reduce import prices for Singapore," said Chua Hak Bin.