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The Merlion statue in Singapore, Tuesday, January 3, 2023. Photographer: Lionel Ng/Bloomberg via Getty Images
Lionel Ng | Bloomberg | fake images
“The MAS will closely monitor global and domestic economic developments and remain alert to risks to inflation and growth,” the central bank said in a statement. policy statement.
Unlike other central banks that adjust their internal lending rates, MAS chooses to adjust the exchange rates of its currency. The central bank strengthens or weakens its currency against that of its major trading partners, thus effectively fixing the S$NEER. The exact exchange rate is not set, but rather the S$NEER can move within the set policy band, the precise levels of which are not revealed.
Starting this year, MAS moved from a semi-annual review of its monetary policy to a quarterly issuance of statements. He noted that he will publish statements in January, April, July and October.
The central bank also said it expects the country’s gross domestic product to improve in 2024, estimating growth between 1% and 3%. Preliminary data from early January showed Singapore’s economy grew 1.2% last year, but posted a 2.8% year-on-year increase in the fourth quarter, its fastest pace of the year.
“Barring further global shocks, Singapore’s economy is expected to strengthen in 2024, with growth broadening. MAS core inflation is likely to remain elevated in the first part of the year, but should gradually decline and decline in the fourth quarter, before falling further next year,” the MAS stated.
The MAS said core inflation is expected to rise in the current quarter “due in part to the exceptional impact of the 1% increase in GST from January this year.” Singapore increased its goods and services tax by one percentage point on January 1.
The central bank estimates that core inflation will average between 2.5% and 3.5% in 2024, unchanged from its October forecast. Excluding the impact of the GST increase, core inflation is expected to average between 1.5% and 2.5%.
Ahead of the MAS decision, Goldman Sachs noted that any significant rise in global commodity prices or higher trade costs could pose a risk to inflation as well as a rise in the GST.
Economists will be watching for clues about when Singapore’s central bank will begin to ease monetary policy.
Singapore’s central bank ended its policy tightening cycle in April after five consecutive tightening decisions.
While inflation has shown signs of moderation throughout 2023, core inflation remains sticky.
At its December meeting, the US Federal Reserve projected at least three interest rate cuts by 2024. Central banks around the world typically follow the Fed’s lead, and economists will closely follow the Fed’s decisions. MORE to find out when it might start relaxing its own policy. .
“Our base case is that the MAS will start easing in April at the earliest,” Yun Liu, HSBC’s ASEAN economist, told CNBC’s “Squawk Box Asia.”
But Liu said there were still risks that could delay the central bank’s easing until the end of this year “and one of them is really underlying inflation.”
“I think this really reminds the market that we are not out of the woods yet… and that there are actually more imminent upside risks to inflation in Singapore if we think about the GST increasing by one percentage point,” Liu said.
Singapore will announce its 2024 budget on February 16 and economists will be looking for signs of any changes in the government’s priorities.
Singapore has implemented short-term support measures to address rising living costs and alleviate inflation. HSBC hopes the new budget will address longer-term priorities such as upskilling the workforce and driving innovation.