Analysts expect MAS to tighten monetary policy in April

Analysts expect the MAS to tighten policy by slightly increasing the appreciation rate of the Singapore dollar's policy band, which is currently at zero per cent.
Analysts expect the MAS to tighten policy by slightly increasing the appreciation rate of the Singapore dollar's policy band, which is currently at zero per cent. ST PHOTO: LIM YAOHUI

Singapore's central bank is expected to tighten monetary policy next month for the first time in six years, with economic growth solid and the labour market showing signs of improvement, a Reuters poll of economists found.

Nine of 15 analysts said their baseline expectation is for the Monetary Authority of Singapore (MAS) to tighten its exchange rate-based policy at its semi-annual policy decision, expected to be announced in mid-April.

The poll was conducted between March 21 and yesterday, and was based on direct responses to Reuters queries as well as some research notes.

The nine analysts expect the MAS to tighten policy by slightly increasing the appreciation rate of the Singapore dollar's policy band, which is currently at zero per cent. "We forecast a continued broadening of growth and gradual reduction in labour market slack, underpinning a moderate rise in core prices. This dynamic should guide policy towards a modest tightening stance next month," Mr Benjamin Shatil, an economist for JPMorgan, said in a research note.

The remaining six analysts predicted that the central bank would keep policy on hold in April.

The central bank has kept the appreciation rate of the Singapore dollar's policy band at zero per cent since April 2016, in what the bank refers to as a "neutral" policy stance.

If the MAS tightens policy next month, it would mark the central bank's first policy tightening since April 2012, when it increased the slope of the band slightly.

If the MAS tightens policy next month, it would mark the central bank's first policy tightening since April 2012, when it increased the slope of the band slightly.

The MAS manages monetary policy via changes to the exchange rate, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed policy band based on its nominal effective exchange rate. It can adjust policy by changing the appreciation rate, mid-point, or width of the Singapore dollar's policy band.

At its last policy review in October last year, the MAS changed a reference to maintaining its neutral policy stance for an extended period, a shift that analysts said created room for the central bank to tighten policy this year.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 28, 2018, with the headline 'Analysts expect MAS to tighten monetary policy in April'. Print Edition | Subscribe