MAS unlikely to change monetary policy in October – experts

There is, however, a 40% chance that it will reduce the slope of the S$NEER band slightly.

Following the easing of headline and core inflation, analysts believe that the Monetary Authority of Singapore (MAS) will likely keep its policy parameters unchanged in its upcoming October policy meeting.

“We think Singapore’s hiking cycle is over after five consecutive tightening moves since October 2021,” RHB said.

UOB shared a similar sentiment, saying there's a 60% chance that MAS will maintain the status quo and keep the slope of the S$NEER policy band unchanged at 1.5% with no tweaks to the level and width.

UOB, however, said there's also a 40% probability that MAS will reduce the slope of the S$NEER band slightly by 50bps to an estimated 1% if the central bank "places more weight on the weakening external outlook. and/or completely exclude the effects of GST in assessing the inflation trajectory, implying that the y/y core inflation level is effectively closer to the 2% handle."

"Given MTI’s narrowing of the official 2023 GDP growth forecast to 0.5% to 1.5% from its original projection of 0.5% to 2.5% and a more pessimistic external outlook narrative during the second quarter-final GDP release, confidence in the domestic growth outlook has weakened which is likely accompanied by a concurrent worsening in the assessment of the 2023 output gap of -0.4%," UOB said.

"Thus, a less restrictive monetary policy via a slight 50 bps reduction in the slope of the S$NEER policy band may provide some countercyclical effects to support the recovery of growth back to potential," UOB added.

RHB underscored that there will be upside pressures for food and energy prices in 4Q23 and  S$NEER has tacked core inflation as a means by policymakers to establish stable prices.

"The consolation, perhaps, is the stronger prognosis for S$NEER into year-end, which is statistically shown to limit overall core inflation pressures. We found that the S$NEER has trended in tandem with core inflation, seen in both year-on-year rates and momentum basis," RHB said.