Important

Singapore Central Bank Keeps Policy Unchanged for Sixth Straight Time

Oct 14, 202400:25 UTC

By Ronnie Harui

SINGAPORE--The Monetary Authority of Singapore left its monetary policy settings unchanged for a sixth straight time, saying that the settings are for now still consistent with medium-term price stability.

The central bank said Monday that it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band. There will be no change to the width and the level at which the S$NEER policy band is centered, the MAS said.

All nine economists and analysts surveyed by The Wall Street Journal had expected the decision.

"Singapore's growth momentum has picked up and the negative output gap is projected to close in H2 2024," the MAS said. "Barring a weakening in global final demand, the economy should continue to expand at a steady pace and keep close to its potential path in 2025," it added.

Singapore's core inflation has eased, but is expected to slow further to around 2% by the end of 2024, the MAS said.

Unlike most central banks, the MAS uses the exchange rate as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.

Write to Ronnie Harui at ronnie.harui@wsj.com

(04:40 GMT) Singapore's Central Bank Holds Steady as Economy Picks Up, Inflation Cools — Update

By Amanda Lee and Ronnie Harui

SINGAPORE--Singapore's central bank held policy settings steady again as the city-state's economy notched its fastest pace of growth in two years and price pressures remained in check.

Gross domestic product expanded 4.1% in July-September from a year earlier, driven mainly by a rebound in manufacturing--a main engine of growth--according to advance estimates released by the Ministry of Trade and Industry on Monday.

That was faster than the 2.9% growth posted in the second quarter and beat the median estimate for 4.0% growth in a Wall Street Journal survey of eight economists.

The reassuringly strong reading came as Singapore's central bank stood pat for a sixth time, as widely anticipated, expecting growth to be sustained by the upswing in the electronics and trade cycles, as well as easing in global financial conditions.

The Monetary Authority of Singapore said it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band, with no change to the width and the level at which the band is centered.

More central banks have joined the global wave of monetary policy easing recently, with Bank of Korea becoming one of the latest to kick off its rate-cutting cycle. A steady growth and inflation backdrop in Singapore suggests the MAS is in no rush to follow suit, with the bank reiterating an upbeat outlook for Singapore's economy but staying wary of inflationary risks.

Official forecasts put the financial hub's economic growth at 2.0% to 3.0% this year.

In Monday's statement, MAS said it expects growth to come in around the upper end of that range.

Next year, the economy will likely expand at close to its potential rate, the central bank said, though significant uncertainty remains.

"A sharp escalation in geopolitical and trade conflicts could exert sizable drags on global and domestic investment and trade," the MAS said.

It flagged risks around the pace and impact of global macroeconomic policy easing, and with it, the durability of the electronics upturn that has helped power Singapore's economy.

The trade ministry data showed that manufacturing--which contributes a big chunk to GDP--grew 7.5% in the third quarter from a year ago. That was up sharply from the 1.1% contraction seen in the second quarter.

Like other tech-producers in Southeast Asia, Singapore has been benefiting from the global artificial intelligence boom, which has helped lift economic growth in export-reliant countries.

Singapore's economy expanded 2.1% on a quarter-over-quarter seasonally adjusted basis in the third quarter, the advance estimates showed. That compared with a 0.4% expansion in the second quarter and with the median estimate of 2.0% growth in a WSJ survey of six economists.

Efforts to keep price pressures in check seem firmly on track, with the central bank expecting core inflation to finish the year at around 2.0%. It lowered the upper band of its full-year forecast for core inflation, now expecting it to average 2.5% to 3.0% versus 2.5% to 3.5% previously.

Headline inflation is now projected at around 2.5% this year, the forecasts showed. Previously, the central bank said headline inflation should average 2.0%-3.0% for 2024.

Unlike most central banks, the MAS uses the exchange rate as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.

The takeaway for OCBC chief economist Selena Ling is that there is greater comfort that the core disinflation is continuing apace. She noted that the MAS inflation outlook sees risks as more balanced compared to three months ago.

The cooling in inflation gives Capital Economics reason to think the Singapore central bank might start its policy pivot next year.

A key reason policymakers may have hesitated to loosen is the pickup in GDP growth, said CE economist Shivaan Tandon. "However, the jump in growth was driven entirely by manufacturing and we doubt this strength will last given our view that the global economy is set to undergo a soft patch."

Given the potential for growth to soften, and that policy remains very tight by historical standards, Capital Economics thinks MAS could start easing in January.

Others take a more cautious view, with economists at both Barclays and Goldman Sachs seeing scope for a hold through next year.

"Barring any shocks to growth and inflation, we expect the MAS to keep policy on hold until end-2025," GS said in a note.

OCBC rates strategists also said they think the central bank will continue to adopt wait-and-see approach, for now.