Singapore39s central bank leaves policy unchanged in first quarterly meeting

Singapore's central bank leaves policy unchanged in first quarterly meeting of 2024 –

The Merlion statue in Singapore, on Tuesday, January 3, 2023. Photographer: Lionel Ng/Bloomberg via Getty Images

Lionel Ng | Bloomberg | Getty Images

“MAS will closely monitor global and domestic economic developments and remain alert to inflation and growth risks,” the central bank said in a policy statement.

Unlike other central banks that adjust their domestic lending rates, MAS chooses to adjust their currency's exchange rates. The central bank strengthens or weakens its currency against those of its major trading partners, effectively setting the S$NEER. The exact exchange rate is not fixed, rather the S$NEER can move within the fixed exchange rate range, the exact amount of which is not disclosed.

Starting this year, the MAS moved from a twice-yearly review of its monetary policy to issuing statements quarterly. It was noted that statements will be published in January, April, July and October.

The central bank also said it expects the country's gross domestic product to improve in 2024, estimating growth at 1 to 3 percent. Preliminary data from early January showed Singapore's economy grew 1.2% last year but posted a 2.8% year-on-year increase in the fourth quarter, its fastest pace this year.

“Barring further global shocks, Singapore’s economy is expected to recover in 2024, supporting growth more broadly. MAS core inflation is expected to remain elevated at the start of the year but should decline gradually and ease through the fourth quarter, before falling further next year,” the MAS said.

The MAS said core inflation is expected to rise in the current quarter, “due in part to the one-off impact of the 1 percentage point hike in GST from January this year”. Singapore increased its goods and services tax by one percentage point on January 1st.

The central bank estimates core inflation to average 2.5% to 3.5% in 2024, unchanged from its October forecast. Excluding the impact of the GST hike, core inflation is expected to average between 1.5% and 2.5%.

Ahead of the MAS decision, Goldman Sachs noted that any significant increase in global commodity prices or higher costs of doing business could pose a risk to inflation, as could the increase in GST.

Economists will be watching for clues as to when Singapore's central bank will begin easing monetary policy.

Singapore's central bank ended its monetary tightening cycle in April after five consecutive tightening decisions.

While inflation shows signs of easing over the course of 2023, core inflation remains stable.

At its December meeting, the U.S. Federal Reserve predicted at least three interest rate cuts in 2024. Central banks around the world often follow the Fed's lead, and economists will be watching the MAS's decisions to gain insight into when to start easing their own Politics could begin.

“Our base case is that the MAS will not be relaxed until April at the earliest, but there is a risk that it will be postponed later in the year,” Yun Liu, ASEAN economist at HSBC, said ahead of the MAS decision.

Liu also noted that the central bank will remain cautious in its approach to easing its monetary policy too quickly because “aside from inflation, better growth also reduces the need for imminent easing by the MAS.”

Singapore will announce its 2024 budget on February 16 and economists will be looking for signs of a shift in government priorities.

Singapore has introduced short-term support measures to cope with higher living costs and curb inflation. HSBC expects the new budget to take into account longer-term priorities such as upskilling the workforce and boosting innovation.

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