MAS policy decision, GDP data: Analyst reactions

The Monetary Authority of Singapore said it will maintain its rate of appreciation of the Singapore dollar at zero per cent, as widely expected.
The Monetary Authority of Singapore said it will maintain its rate of appreciation of the Singapore dollar at zero per cent, as widely expected. PHOTO: BLOOMBERG

SINGAPORE - Singapore's central bank left monetary policy unchanged after economic growth eased in the first quarter, saying the neutral stance is appropriate for an extended period of time.

The Monetary Authority of Singapore said it will maintain its rate of appreciation of the Singapore dollar at zero per cent, as widely expected. Becasue Singapore is heavily trade-dependent, MAS manages monetary policy though changes to the exchange rate, rather than interest rates, letting the Singdollar rise or fall against the currencies of its main trading partners.

Singapore's economy lost some of its momentum in the first quarter, growing a slightly less-than-expected 2.5 per cent year on year in the first quarter of 2017 from the 2.9 per cent growth in the previous quarter.

Here's some early reactions from analysts:

ANZ Research economist Ng Wei Wen: Cautious on growth rebound

"The economic outlook for Singapore - the Asean economy most leveraged to global trade cycles- will hinge on the magnitude and durability of the ongoing export recovery and whether it can filter into other components of growth, including consumption and investment.

Notwithstanding improving growth conditions, structural headwinds persist. Key amongst these is slack in the labour market. Various indicators such as a falling job vacancy ratio, slowing wage growth, and declining reemployment of retrenched workers point to a tough labour market.

 
 

Overall, the interplay between these structural problems and the cyclical improvement in exports suggest only a modest improvement in growth and inflation to edge up slightly higher on administered price increases with generalised demand-induced pressures to be absent .

MAS kept the "extended period" wording today, consistent with our expectations. In our assessment, the improvement in the global and domestic outlook so far is not sufficient to warrant a shift in stance or tone. We are also cautious about the extent of any rebound in growth.:"

OCBC economist Selena Ling: MAS will stand pat till at least October

"In our view, the extended period for monetary policy will extend to at least October 2017.

Our house forecast (for 2017) remains at 2 per cent for GDP growth and 1.0 per cent and 1.6 per cent for headline and core inflation forecasts respectively. The green shoots remain less than broad-based and inflationary pressures are mainly arising from higher oil prices and domestic policy-driven pricing pressures.

Despite the healthy manufacturing clip, the rest of the manufacturing sector is tipped to "remain patchy" apart from the domestic semiconductor and precision engineering industries. Note construction saw its third straight quarter of on-year contraction due to weakness in private sector construction activities and another contraction in 2Q17 looks plausible. Housing rents are also tipped to continue to decline this year, and the lackluster domestic environment will deter businesses from fully passing on higher costs to consumers."

Westpac senior currency strategist Sean Callow: Neutral is the new black

"The MAS's unchanged policy band and growth and CPI (consumer price index) forecasts should not surprise anyone. But those hoping for a hawkish hint for October are likely to be disappointed by the retention of the line that neutral policy "is appropriate for an extended period."

SGD NEER (Singapore dollar nominal effective exchange rate) should give up some of its recent gains ... But the statement and GDP report should not inspire sustained SGD losses."