MAS "very concerned" over inflation

Inflation rate has been more persistent but MAS is yet to set a formal target for inflation.

Yesterday, the STI lost another 0.87% and the SGD bond market reflected a thin outlook, lagging the strong receiving interest in SGD swaps. Furthermore, prices went two-way, dropping on SPOWER and STSP and lifting on PB and retail accounts.

Here's more from the OCBC Treasury Research:

Trade & Industry Minister Lim Hng Kiang said that “inflation rate has been more persistent” and the MAS is “very concerned” even though MAS has no formal target for inflation. He also said that low interest rates have supported property demand.

The STI lost another 0.87% to close at 2960.10, but may attempt to stabilize and retrace slightly today, given slightly more positive morning leads from Nikkei and Kospi. Expect the STI to face support and resistance at 2950 and 3000 today. ST Engineering, Olam and Noble may be in focus. SGS bonds had lagged the strong receiving interest in SGD swaps yesterday which drove the belly of the swap curve some 5-10bps lower, so we wouldn’t be surprised if SGS bond yields remain range-bound today.

SGD rates closed 2-10bp lower with outperformance in the belly – 5-year closed at 1.19% (-9.5bp) while 10-year closed at 2.085% (-8.5bp) and 6M SOR was at 52.5bp (-2bp). Market was thin and the 5-year was well-offered below 1.2%. Official comments were supportive with the Minister of Trade & Industry commenting that MAS is very concerned about inflation and that low interest rates are necessary to support property demand.

Yesterday’s price action in the SGD bond market was two-way, with us being hit on SPOWER and STSP in the morning, followed by lifts by PB and retail accounts in the afternoon, on names including SBUS. CapitaRetail ChinaTrust also announced a US$500mn MTN programme away from us, indicative of a potential new issue in the pipeline.

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