KUALA LUMPUR: CIMB Treasury and Market research expects the Monetary Authority of Singapore (MAS) to only start its monetary policy easing in January 2025, from July 2024 previously, on elevated core inflation numbers.
MAS' decision to maintain its monetary policy settings - as widely expected - was guided by its expectation that core inflation, which came in at a seven-month high of 3.6 per cent year-on-year in February, will remain elevated in the near term before slowing more discernibly in fourth quarter of 2024 (4Q24) and 2025. It said MAS expects its measure of core inflation to remain elevated in the near term in conjunction with water tariff hikes in April as well as upward adjustment in prices of essential services (reflecting the continuation of input and labour cost pass-through), before moderating more markedly in 4Q24 and 2025. MAS cited shocks to global food and energy prices as well as resurgent labour demand as upside risks to its inflation assessment, while a sharper-than-expected global economic slowdown poses a downside risk.
"MAS' cautious approach with its inflation outlook indicates the central bank is unlikely to loosen the slope of Singapore dollar nominal effective exchange rate policy band until core inflation eases significantly closer to 2 per cent," CIMB research said in its note on Friday.
Considering that October-December inflation data is not yet available, by the time the quarterly meeting takes place in October, monetary policy easing may only take place in Jan 2025 at the earliest, against its earlier expectation of Jully 2024.
Meanwhile, easing imported inflation and domestic cost pressures is expected to ensure core inflation remain on its broad moderating path.
The core inflation outlook indicates a slim chance of the central bank loosening the Singapore dollar nominal effective exchange rate policy setting this year, especially as October-December inflation data would not be available at the time of the quarterly monetary policy meeting in October.
Singapore's 1Q24 GDP growth moderated to 0.1 per cent on a seasonally adjusted quarter-on-quarter (qoq) basis while year-on-year (yoy) performance improved to 2.7 per cent yoy due to base effects, according to advance GDP estimates that are computed largely from data in the first two months of the quarter. CIMB said both readings underperformed market expectations of 0.5 per cent qoq and 3.0 per cent yoy.
"However, they may be subjected to upward revisions, in our view, once comprehensive dataset that reflect the impact of concert events taking place in March is available," CIMB research said.
The services sector was the main driver of growth in 1Q24, led by consumer-facing sectors in tandem with an increase in tourist arrivals, offsetting the moderation in manufacturing and construction
