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Singapore – MAS off-cycle move does not rule out further tightening in April, GST hike soon: economists
THE surprise off-cycle tightening of policy by the Monetary Authority of Singapore (MAS) does not preclude further moves in April, nor does the higher-than-expected inflation mean that the anticipated Goods and Services Tax (GST) hike will have to be delayed, said economists.
Ahead of its scheduled April meeting, the MAS on Tuesday (Jan 25) raised the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) slightly, while keeping its width and level unchanged.
Given that “this off-cycle move is meant to front-load” calibrated tightening, Mizuho Bank head of economics and strategy Vishnu Varathan believes that the default is now for the MAS to hold steady in April. But he added that if inflation continues to surprise on the upside significantly, then the MAS could tighten further in April.
Other economists, however, expect further tightening in April regardless.
“Given the ‘slight’ adjustment in slope today, we expect another 50 basis points increase in the slope to 1.5 per cent in the April policy meeting,” said Bank of America Asia and Asean economist Mohamed Faiz Nagutha, based on his estimate of the current slope.
As for whether the policy band may be re-centred, this is not his baseline as long as the expectation is for inflation to moderate in the second half of 2022 and into 2023, he added.
Similarly noting that Tuesday’s steepening was merely “slight”, OCBC Bank head of treasury research and strategy Selena Ling also sees a further steepening of the slope in April, potentially to an appreciation path of 2 per cent, “if inflation remains broad-based and persistent than what has been priced in currently”.
For her, the key determinant is whether core inflation peaks and stabilises at 3 per cent; or instead, private consumption stays buoyant and drives car and housing prices higher, while there are more domestic fee adjustments in addition to imported inflation.
Budget 2022 is expected to shed light on the timing of the long-anticipated GST hike, with one question being whether higher-than-expected inflation could delay the hike’s implementation.
But Nagutha does not expect a delay: “The potential hike in GST, expected to be announced in the Feb Budget and likely to take effect from July, will have no direct implications for monetary policy in our view.”
Source: https://www.businesstimes.com.sg/government-economy/mas-off-cycle-move-does-not-rule-out-further-tightening-in-april-gst-hike-soon