MAS not likely to ease monetary policy, say economists

hey cite pressure on costs in S'pore coupled with risks abroad as reasons

MAS not likely to ease monetary policy, say economists

-- PHOTO: ISTOCKPHOTO

MOUNTING pressure on costs here coupled with risks abroad give the central bank little reason to ease monetary policy when it meets next month, said economists.

They expect the Monetary Authority of Singapore (MAS) to stand pat on its approach of a gradual and modest appreciation of the Singapore dollar.

The dollar is managed against a basket of currencies of Singapore's major trading partners such as Malaysia, the European Union and China.

The exchange rate is the Government's main tool to combat inflation: A stronger currency means imports cost less in Singdollar terms.

MAS will release a policy statement next month which will set the tone for how the currency will perform for the next six months.

Inflation eased to a four-year low last month, but domestic cost pressures - particularly from the tight labour market - are expected to intensify later in the year.

Consumer prices rose just 0.4 per cent in February over last year, compared with 1.4 per cent in January. It was the smallest increase since January 2010.

OCBC economist Selena Ling said last month's inflation figure was a sign that policies such as car and property market curbs have worked in stabilising asset prices.

That suggests it is unlikely that February's slower inflation will prompt MAS to pre-emptively ease monetary policy, especially given that economic growth is stabilising, added Ms Ling.

Bank of America Merrill Lynch economist Chua Hak Bin said combating inflation is likely taking precedence over economic growth in the minds of policymakers.

Core inflation - which excludes accommodation and private road transport costs, and is seen as a better gauge of out-of-pocket cash expenses for most households - has exceeded headline inflation since December last year, he noted.

Dr Chua added that growth - which is expected to remain fairly robust - "provides room for MAS to keep policy at the current stance so as to deal with the inflationary pressures".

While upward pressure on wages remains a primary concern, the central bank will also be taking offshore risks into account in maintaining its stance.

UOB economist Francis Tan said interest rates are expected to begin climbing back to pre-financial crisis levels as the United States winds down its bond-buying programme.

Investors are likely to shift funds back to the US, boosting demand for the greenback and causing it to appreciate against the Singdollar.

"If MAS adopts a loose policy and the US dollar appreciates significantly against the Singdollar, it could lead to imported inflation and affect Singapore companies which buy and sell goods using the US dollar," said Mr Tan.

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