Singapore’s Central Bank Maintains Policy Unchanged in First 2024 Quarterly Monetary Policy Decision

Singapore’s Central Bank Maintains Policy and Exchange Rate Band

Summary

Singapore’s central bank, the Monetary Authority of Singapore (MAS), announced on Monday that it will keep its policy unchanged in its first quarterly monetary policy decision of 2024.

Furthermore, MAS will maintain its exchange rate policy band known as the Singapore dollar nominal effective exchange rate or S$NEER.

In its policy statement, the central bank stated that it will closely monitor global and domestic economic developments and remain vigilant to risks to inflation and growth.

Unlike other central banks that adjust their domestic lending rates, MAS chooses to adjust the exchange rates of its currency. MAS strengthens or weakens its currency against those of its main trading partners, effectively determining the S$NEER. The exact exchange rate is not disclosed; instead, the S$NEER can fluctuate within the set policy band, the specific levels of which are undisclosed.

Starting this year, MAS shifted from a semi-annual review of its monetary policy to quarterly statements. It will release statements in January, April, July, and October.

Outlook for GDP and Inflation

MAS also provided its outlook for Singapore’s gross domestic product (GDP) in 2024, expecting growth to be between 1% and 3%.

Preliminary data from early January indicated that Singapore’s economy grew by 1.2% in the previous year, with a year-on-year increase of 2.8% in the fourth quarter, the fastest pace for the year.

The central bank stated that the Singapore economy is expected to strengthen in 2024, with growth becoming more broad-based. MAS Core Inflation is expected to remain elevated in the earlier part of the year but gradually decline and decrease further next year.

Core inflation is projected to rise in the current quarter, partly due to the one-off impact of the 1%-point hike in the goods and services tax (GST) in January. MAS estimates core inflation to average between 2.5% and 3.5% in 2024. Excluding the impact of the GST hike, core inflation is projected to average between 1.5% and 2.5%.

Potential Risks and Monetary Policy Implications

Prior to the MAS decision, Goldman Sachs highlighted that significant increases in global commodity prices or higher business costs could pose risks to inflation, alongside the GST hike.

Easing of Monetary Policy

Economists will closely observe MAS’s decisions for indications of when the central bank may begin easing its monetary policy.

Singapore’s central bank concluded its policy tightening cycle in April last year after five consecutive decisions to tighten.

While inflation has shown signs of easing throughout 2023, core inflation remains persistent in Singapore.

The U.S. Federal Reserve projected at least three interest rate cuts for 2024 at its December meeting. Economists often look to the Fed as a guide, and they will monitor MAS decisions for insights on when it may start loosening its own policy.

“Our base case is for the MAS to start easing in April, at the earliest,” said HSBC’s ASEAN economist Yun Liu. However, Liu noted that core inflation poses a potential delay to the central bank’s easing plans, especially considering the impact of the GST hike.

2024 Budget Expectations

Singapore will unveil its budget for 2024 on February 16, and economists will look for any shifts in government priorities.

In response to rising living costs and to address inflation, Singapore has implemented near-term support measures. HSBC anticipates the new budget to focus on longer-term priorities, such as upskilling the labor force and promoting innovation.

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