(Bloomberg) -- Singapore’s central bank left its neutral policy stance unchanged on Friday, without re-committing that it remains appropriate for an extended period, giving itself room to tighten next year if necessary.
After easing three times between January 2015 and April last year, the Monetary Authority of Singapore stuck to its neutral stance of zero appreciation in the currency, in line with the forecasts of all but one of the 23 economists surveyed by Bloomberg. The MAS is the only central bank in a major developed nation to use the exchange rate as its main tool.
The MAS referred to comments in its October 2016 statement that the neutral stance would be appropriate for an “extended period,” without explicitly repeating that guidance going forward.
“By dropping that, they sort of change the tone and signal that they could tighten into next year but haven’t yet pulled the trigger,” Michael Wan, an economist at Credit Suisse Group AG in Singapore, said by phone. Similar to policy makers in other developed countries, like the European Central Bank, “they want to give themselves space to tighten if inflation picks up because of stronger growth.”
Even as the MAS keeps its options open, some economists still see no urgency to tighten policy. Wan expects another hold when the central bank makes its next scheduled policy decision in April.
Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore, said in an email that she was surprised by the dovish tone of the statement, which cited slowing growth and modest inflation. That “essentially reinforces that there is no need to jump the gun on tightening,” she said.
Manufacturing Surge
The MAS said economic growth will probably come in at the upper half of the 2 percent to 3 percent forecast range for this year, but expand at a slightly slower pace in 2018. Prime Minister Lee Hsien Loong said in August that he expected growth of 2.5 percent pace for this year.
In a separate report on Friday, the trade ministry said gross domestic product grew an annualized 6.3 percent in the third quarter from the previous three months, beating most forecasts in a Bloomberg survey. The increase was supported by a 23.1 percent surge in manufacturing even as construction contracted 9.2 percent, the figures showed.
Renewed momentum in global trade, including a surge in electronics, has helped trade-reliant Singapore regain its footing. The export strength has yet to filter through to the consumer side, which is hobbled by lingering softness in employment and a weak, but improving, property market.
“For the rest of the year and into 2018, GDP growth in Singapore’s major trading partners is expected to remain firm, but could slow slightly as the global economic recovery enters a more mature phase,” the MAS said.
Core inflation is projected to come in at about 1.5 percent this year and average 1 percent to 2 percent next year, it said. Over the medium term, it’s expected to “trend towards but average slightly below 2 percent,” the central bank said.
The Singapore dollar fell 0.1 percent to S$1.3538 per greenback at 10:25 a.m. local time.
The central bank guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of a currency band. It doesn’t disclose details on the basket, or the band or the pace of appreciation or depreciation.
“So long as core inflation stays below 2 percent, there is no urgency for MAS to tighten policy,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “On the whole, not as hawkish as what the market had been expecting, but equally cannot say it is dovish as well. It looks like the MAS is giving themselves some room to tighten next year if they see fit.”
©2017 Bloomberg L.P.
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