Singapore C.Bank Keeps Policy on Hold, Opens Door to 2018 Tightening
Singapore. Singapore's central bank held monetary policy steady on Friday (13/10) but changed a reference to maintaining current settings for an extended period, a shift that analysts said created room for a tightening next year.
The Monetary Authority of Singapore (MAS) said it would maintain the rate of appreciation of the Singapore dollar's policy band at zero percent, adding that the width and the level at which it is centered will be unchanged.
The central bank said while growth in Singapore's major trading partners is expected to remain firm next year, it could moderate as the global economic recovery stabilized.
Official data released on Friday showed Singapore's trade-reliant economy grew 6.3 percent in the third quarter from the previous three months on an annualized basis, driven by demand for production of electronics goods and much faster than the median forecast in a Reuters survey of 3.2 percent.
Analysts say the central bank's policy statement suggests it holds a cautious view about growth next year while also keeping some space for policy adjustment if economic conditions provide a positive surprise.
"We expect the global electronics cycle to remain strong until the end of this year and then start petering out early next year," NatWest Asia Economist Vaninder Singh said in a note.
"For this reason, we are leaving our base case view unchanged at this stage for no change from the MAS in April next year as well. Of course, the data in the interim will bear close watching."
Economists this month focused on the central bank's use of the term "extended period" to describe the need for a neutral policy stance and what that might mean for policy going forward.
In its April statement, it had reiterated the forward guidance introduced in October 2016 by saying its neutral policy was appropriate for an "extended period" to ensure medium-term price stability.
On Friday, the central bank framed that outlook in past tense, saying it "had indicated" in October 2016 that the neutral policy stance would be appropriate for an extended period, which some economists described as a watering down of its forward guidance.
The MAS said core inflation is projected to come in at around 1.5 percent in 2017 and average 1-2 percent next year, adding that core inflation is expected to average slightly below 2 percent in the medium term.
Singapore manages monetary policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against the currencies of its main trading partners within in an undisclosed policy band.
The Singapore dollar slipped after the MAS policy decision, and was last down 0.2 percent on the day at 1.3543 per US dollar.
Asian Policy Divergence
Singapore's policy stance tracks similar postures by other central banks in the region, which are increasingly shifting away from closely tracking US monetary policy.
"They don't think they have to follow the Federal Reserve tit-for-tat," said Selena Ling, head of research and strategy for OCBC Bank, referring to the US central bank's policy tightening bias.
"The read of this statement is that they are a little bit more upbeat on the economic side, but still fairly cautious and a little bit dovish, in terms of the inflation outlook. The window is open for 2018," Ling added.
Twenty-four of 25 analysts in a Reuters survey predicted the MAS would keep monetary policy unchanged this month, given the lack of strong inflationary pressures, while one analyst expected a tightening.
"This is a bit akin to the European Central Bank where growth has picked up but inflation hasn't picked up to the point where they need to pull the trigger on tightening policy," said Michael Wan, an economist for Credit Suisse.
Reuters
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