SINGAPORE: The Monetary Authority of Singapore (MAS) is expected to conduct another tightening move at its upcoming monetary policy meeting in April. This is according to analysts who believe that it will likely be milder this time compared to MAS’s two aggressive tightening moves last year.
Ongoing concerns over inflation and global economic impact following the Japan disaster and turmoil in the Middle East may be factors that could prompt the central bank to take that stance.
Singapore’s economy is still expected to grow strongly this year. Economists expect around 5.7 per cent GDP growth, after the blistering 14.5 per cent clip recorded in 2010. This is at the upper end of the government’s four to six per cent forecast.
However, there are emerging concerns about the impact of recent global events on Singapore’s open economy.
These could be factored into the monetary policy decision.
Vishnu Varathan, Asia economist with Capital Economics, said: “MAS at the margin would be more cautious about downside risks. But the main risk that MAS is watching now is that of price stability, so come the April decision, would Japan’s earthquake be factored into decision making? Yes. Would it change the outcome? Probably not, because Japan’s impact is probably going to be temporary.”
Consumer price inflation in Singapore hit 5 per cent in February compared to a year ago.
Although that was lower than January’s 5.5 per cent rise, it could still go higher in March, according to analysts. This will likely mean the MAS has to remain on a tightening bias, but less so in light of the concerns around growth.
Peter Redward, Head of Emerging Asia Research at Barclays Capital, said: “We expect MAS to accelerate the pace of the Singapore dollar appreciation very mildly from around 3.5 per cent on an annualised basis at present to around 4 per cent. We are not expecting them to widen the band or re-centre.”
The MAS manages monetary policy by setting an exchange rate band for the Singapore dollar, against a basket of undisclosed currencies. By re-centering the midpoint, it allows the dollar to move up or down within that band.