Singapore central bank gets tightening trigger

• Feb 23, 2018

SINGAPORE: Singapore’s government may have given the central bank a green light to charge ahead with monetary policy tightening this year.

Economists are more confident in their calls that the Monetary Authority of Singapore (MAS) will exit its neutral stance as soon as the next scheduled decision in April.

They’re encouraged after Finance Minister Heng Swee Keat said on Monday that the budget position for 2018 would “remain expansionary” as Singapore incurred a small deficit amid greater spending and delayed tax increases.

“The impulse to the economy is going to be quite positive” on top of already bright growth and job-market prospects, said Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch.

“This makes us more confident that MAS will exit its neutral policy in April. We still think it will be very gradual.”

The central bank stuck to a neutral stance in its previous October decision, while giving itself room to tighten policy if necessary.

The MAS, which uses the exchange rate as its main tool, eased three times between January 2015 and April 2016.

The projected budget deficit for next year also had Credit Suisse Group AG economists affirming their forecasts for the period.

While immediate tax hikes were limited in the budget, giving less of a bump to inflation, the economy had been picking up and consumption is well supported, said Michael Wan, a Singapore-based economist at the bank.

Given that the economy is expected to “do quite well this year, we still think the MAS will tighten exchange-rate policy,” probably in October, he said.

Inflation pressures remain muted, with a report today probably showing consumer prices rose 0.4% in January from a year ago, the same pace as in December, according to a Bloomberg survey of economists.

The MAS forecasts its core inflation measure, which reached 1.3% in December, will average 1% to 2% this year.

Economists at Goldman Sachs Group Inc see the fiscal expansion as having a “more muted” impact on growth for 2018 than the numbers suggest, in part because a S$5bil (US$3.8bil) increase in rail infrastructure funding will probably be spread out over multiple years, according to a research note yesterday. They are sticking to their forecast that the MAS will tighten in October as demand remains strong and inflationary pressures rise.

The overall budget was an eclectic mix, with Irvin Seah at DBS Group Holdings Ltd calling it a “give and take” document with “some goodies for everyone.” — Bloomberg

Source: https://www.thestar.com.my/business/business-news/2018/02/23/spore-central-bank-gets-tightening-trigger/#jAmC9bHkiOD4gzQX.99