Singapore’s central bank leaves policy unchanged at first quarterly meeting in 2024

Singapore’s central bank left its policy unchanged in its first quarterly monetary policy decision of 2024 on Monday, as expected.

The Monetary Authority of Singapore said it will also maintain the exchange rate band known as the Singapore dollar nominal effective exchange rate or S$NEER.

“The MAS will closely monitor global and domestic economic developments and remain vigilant about risks to inflation and growth,” the central bank said in a policy statement.

Unlike other central banks that change national lending rates, MAS chooses to change the exchange rates of its currency. The central bank strengthens or weakens its currency relative to those of its major trading partners, thereby effectively fixing the S$NEER. The exact exchange rate is not fixed, rather the S$NEER can move within the established policy range, the precise levels of which are not disclosed.

Starting this year, the MAS moved from a biennial review of its monetary policy to a quarterly release of statements. He noted that he will issue statements in January, April, July and October.

The central bank also forecast an improvement in the country’s gross domestic product in 2024, estimating growth of between 1% and 3%. Preliminary data from early January shows Singapore’s economy grew 1.2% last year, but posted a 2.8% year-on-year increase in the fourth quarter, the fastest pace this year.

“Barring any further global shocks, Singapore’s economy is expected to strengthen in 2024, with growth becoming broader. MAS core inflation is likely to remain elevated in the early part of the year, but is expected to decline gradually and decline by the fourth quarter, before falling further next year,” the MAS said.

The MAS said core inflation is expected to rise in the current quarter “due in part to the one-off impact of the 1% increase in GST from January this year”. Singapore increased its goods and services tax by one percentage point on January 1.

The central bank estimates core inflation will average between 2.5% and 3.5% in 2024, unchanged from its October forecast. Excluding the impact of the GST increase, core inflation is expected to average between 1.5% and 2.5%.

Ahead of the MAS decision, Goldman Sachs noted that any significant increase in global commodity prices or rising business costs could pose a risk to inflation, as could the GST increase.

Economists will be looking for clues as to when Singapore’s central bank will begin easing monetary policy.

Singapore’s central bank ended its monetary policy tightening cycle in April, after five consecutive tightening decisions.

While inflation has shown signs of slowing throughout 2023, core inflation remains sticky.

At its December meeting, the US Federal Reserve forecast at least three interest rate cuts for 2024. Central banks around the world often follow the Fed’s lead, and economists will monitor the MAS’s decisions to understand when it might begin to loosen your policy. .

“Our baseline scenario is that the MAS starts easing no earlier than April,” Yun Liu, ASEAN economist at HSBC, said on CNBC’s “Squawk Box Asia.”

But Liu said there were still risks that could delay central bank easing until the end of this year “and one of them is core inflation.”

“I think this really reminds the market that we’re not out of the woods yet… and actually there are more imminent upside risks to inflation in Singapore if we think about the 1% increase in the GST,” Liu said.

Singapore will announce its 2024 budget on February 16 and economists will be looking for indications of any changes in the government’s priorities.

Singapore has taken short-term support measures to address the rising cost of living and ease inflation. HSBC expects the new budget to address long-term priorities, such as upskilling the workforce and promoting innovation.