MAS expected to tighten monetary policy in April: Reuters poll

SINGAPORE (Mar 27): Singapore’s central bank is expected to tighten monetary policy in April 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 to tighten its exchange-rate based policy at its semiannual policy decision, expected to be announced in mid-April.

The poll was conducted between March 21 to March 27, 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 percent.

“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 toward a modest tightening stance next month,” 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 percent since April 2016, in what the central 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.

The MAS manages monetary policy by 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 (NEER).

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, 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 in 2018.