Singapore’s central bank is widely expected to keep policy steady next week, with the economy seen on track to meet the official full-year forecast despite an expected contraction in the first quarter. Eighteen of 19 analysts in a Reuters survey predicted that the Monetary Authority of Singapore (MAS) would keep its exchange-rate based policy unchanged at its semiannual review due on April 13, at 8am (0000 GMT).
The government’s advance estimate of first-quarter GDP, due at the same time, is expected to show that GDP shrank 1.9% from the previous three months on annualised basis, according to the median forecast in a Reuters survey. Economists say the likely contraction is due to the economy coming off a high peak in the fourth quarter, when GDP jumped 12.3% on-quarter, rather than signalling any sharp deterioration in economic activity.
“I don’t think there’s a need for alarm,” said Selena Ling, head of treasury research and strategy for OCBC Bank. “Whether all these green shoots that we’re seeing in manufacturing sustains into the second quarter, that’s the key question,” Ling added.
Market focus will also turn on any changes to the forward guidance introduced in October 2016, when the MAS said it “assesses that a neutral policy stance will be needed for an extended period to ensure medium-term price stability.” Since inflation has edged higher and exports have picked up, analysts say a removal of that phrasing could stir market speculation of the MAS tightening policy in October. Still, very few see chances of tighter policy anytime soon, especially given some of the external risks to the outlook, including a rise in trade protectionism under US President Donald Trump’s administration and any weakness in China – Singapore’s biggest trading partner.
First-quarter GDP probably grew 2.4% on a year-on-year basis, according to the median forecast.
While that would be slower than the fourth quarter’s 2.9% expansion, the pace would still be at the higher end of the government’s full-year forecast of 1%-3% for this year, and the 2016 full-year rate of 2.0%. With exports and manufacturing having picked up since late 2016, and inflation rising in line with official forecasts, most analysts expect the MAS to stand pat after having eased policy three times since January 2015, most recently in April 2016.
The MAS maintained a stance of zero appreciation of the Singapore dollar NEER’s policy band at its previous decision last October, leaving scope for the currency to weaken and provide a cushion to the economy in the event of a deteriorating outlook.