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Singapore’s Current Monetary Settings Remain Necessary And Sufficient, Says Maybank IB

KUALA LUMPUR: The Monetary Authority of Singapore (MAS) has maintained the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) and kept the width
and the level of the band was unchanged at the April policy meeting.

The Monetary Authority of Singapore expects the gross domestic product growth outlook to brighten throughout 2024.

Maybank Investment Bank Bhd (Maybank IB), in a report, said this was the fourth hold
following five consecutive tightening moves since October 2021, in line with the research firm’s and consensus expectations.

“We think MAS will ease policy only in October at the earliest via a gentler
S$NEER slope,” Maybank IB noted.

The bank-backed research firm said MAS has reiterated that current monetary settings remain appropriate and sufficient to ensure medium-term price stability.

It said the current rate of appreciation is necessary to restrain imported inflation and domestic cost pressures.

MAS remains vigilant on inflation,
maintaining its view that core inflation should remain elevated earlier in the year.

“The central bank mentioned that inflation should stay on ‘its broadly moderating path’ and step down in the fourth quarter (Q4) before falling further in 2025,” Maybank IB noted.

The research firm also noted that MAS maintained its forecast range for core and headline inflation at 2.5-3.5 per cent in 2024.

It mentioned that the uptick in January-February core inflation, at 3.4 per cent, was lower than expected due to a decline in food and travel-related services inflation.

Underlying inflation, excluding the impact of the goods and services tax (GST) hike, was estimated to be unchanged from Q4.

“Similar to our expectations, MAS thinks core inflation will stay around current levels in the near term. Water prices were hiked in April to 7.3 per cent, while prices of certain services, such as education and healthcare, will continue catching up with higher business costs.

“Nonetheless, MAS expects a sustained moderation in imported and domestic cost pressures.

“Global prices of most food commodities and intermediate and final goods remain
subdued, although crude oil prices have risen over the past three months,” Maybank IB noted.

Further, Maybank IB noted that MAS expects unit labour costs to rise significantly slower in 2024 as wage growth eases and labour productivity picks up.

On Singapore’s gross domestic product (GDP) growth, MAS expects the outlook to brighten throughout 2024.

Manufacturing and financial sectors should resume their recovery, supported by the electronics cycle upturn and easing global interest rates. Growth in the domestic-oriented sectors is expected to
normalise and slow towards pre-pandemic rates, Maybank IB noted.

“Given the stronger-than-expected first quarter (Q1) flash estimates, we raise our 2024 GDP growth forecast to 2.4 per cent from 2.2 per cent.

“Our GDP forecast stands at the upper end of Singapore’s Ministry of Trade and Industry’s (MTI) 1-3 per cent forecast
range,” Maybank IB noted.

The research firm said the outlook is predicated on a recovery in manufacturing and trade-related sectors as exports
rebound from their deep slump in 2023.

The firm noted that the Red Sea tensions have acted as a speedbump to the manufacturing recovery but should not be a roadblock without a broader Middle East conflict.

Global container freight rates have been cooling from their late-January peak
while manufacturers and shippers are adapting to the disruptions in their supply chain.

Consumer and tourism-sensitive services were buoyed by the strong comeback in revenge travel in the first quarter.

“That said, momentum may lose some steam for the rest of the year with the near-complete normalisation in tourist arrivals to pre-pandemic levels and the fading of the ‘Taylor Swift’ boost.

“Moreover, elevated inflation has prompted some households to tighten their belts, while the strong Singdollar is encouraging locals to divert their spending budgets
abroad,” Maybank IB noted.

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