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Trade Risks Aside, Singapore Central Bank Is Ready to Tighten

Singapore’s central bank is one step closer to tightening monetary policy this week.

Trade Risks Aside, Singapore Central Bank Is Ready to Tighten
Singapore banknotes in various denominations are arranged for a photograph in Sydney, Australia. (Photographer: Ian Waldie/Bloomberg News)

(Bloomberg) -- Singapore’s central bank is one step closer to tightening monetary policy this week.

A majority of economists surveyed by Bloomberg predict policy makers will look past the latest trade skirmishes between the world’s two largest economies and assess the city state’s growth outlook as solid and inflation healthy. The Monetary Authority of Singapore, which uses the exchange rate as its main tool, has kept its policy unchanged since shifting to a neutral stance two years ago.

“Growth momentum is positive, global growth is actually good, and trade momentum from the start of the year has been quite good as well,” said Edward Lee, chief economist for South and Southeast Asia at Standard Chartered Plc in Singapore. While “certainly the risks have risen” on trade, “things are simply too accommodative at the moment.”

Trade Risks Aside, Singapore Central Bank Is Ready to Tighten

Of the 24 forecasts gathered from a Bloomberg survey and economists’ research notes, 15 predict the MAS will adjust its policy stance toward tightening. The rest see policy staying on hold.

The split shows how difficult the call might be. With 63 percent of the respondents seeing a tightening stance, the economists are more divided than at any time in three years.

Singapore should see another strong year for economic growth, stepping back only slightly from last year’s pace of 3.6 percent, which was the fastest since 2013. A government report on Friday will probably reinforce that view, showing gross domestic product expanded 4.3 percent in the first quarter from a year ago, according to a Bloomberg survey of economists.

Trade Risks Aside, Singapore Central Bank Is Ready to Tighten

A surge in exports last year generated demand that’s now spreading out to other industries, and an “expansionary” budget in 2018 should provide additional support. Inflation has also remained within the central bank’s forecast range even as it picked up in April.

Singapore guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band. The MAS typically announces policy decisions twice a year, in April and October.

READ MORE:

  • Singapore Central Bank April Policy Decision Survey (Table)
  • A Central Bank With No Key Rate? Yes, in Singapore: QuickTake 
  • Singapore Economic Policy Uncertainty Index Climbs
  • February inflation gives room for MAS to consider pause

Sixteen economists in the Bloomberg survey see the MAS steepening the slope of the currency band from the current zero percent, indicating it would seek an appreciation in the Singapore dollar.

The U.S. and China continue to lob tariff threats at each other, roiling financial markets and clouding the global trade outlook. Chinese President Xi Jinping did his part Tuesday to calm trade-war worries by reiterating a pledge to open up a range of industries to foreign investors and warning against returning to a “Cold War mentality” amid the disputes.

What Our Economists Say

“External risks from protectionism have risen significantly and have scope to increase further into U.S. mid-term elections in November.
Trade war or not, ongoing monetary policy support may be needed to underpin a nascent recovery in business lending and household spending.”

--Tamara Henderson, Bloomberg Economics

A hold by the MAS would be more in line with recent decisions by other central banks in the region. The Bank of Thailand voted 6-1 in a March 28 decision for no change in policy with below-target inflation and a surging currency.

The Philippines held its benchmark interest rate at a record-low 3 percent on March 22, predicting inflation will remain inside its target band through 2019. Bank Indonesia also kept its benchmark rate unchanged on the same day amid subdued price growth.

--With assistance from Masaki Kondo

To contact the reporters on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net, Myungshin Cho in Seoul at mcho38@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram

©2018 Bloomberg L.P.