MAS likely to deliver a dovish policy hold in Oct
Sept 26 (Reuters) -The Monetary Authority of Singapore is not expected to make any change to FX policy at its October meeting, thoughthe probability of easing has increased after the U.S. Federal Reserve's hefty 50 basis-point rate cut.
The MAS will likely keep the slope and midpointof the SGD NEER unchanged in a dovish policy hold, while continuingto highlight inflation risks from wage pressures and oil prices
Higher-than-expected Augustcore inflation data, relatively stable economic growth and the escalating Middle East conflictshould keepthe MAS from easing for now. They arelikely to wait until after the U.S. presidential electionbefore considering the next move, amid risingtrade protectionism and a Trump 2.0 scenario.
August core inflation rose 2.7% annually, above the 2.6% forecast, after two consecutive drops including July, which saw thesmallest annual increase since February 2022.
A lower core readingwould have tilted the risk towards an easing in October. Withaccommodation and services inflation remainingtight and businesses passingon labour-related coststo consumers, core inflation may still creeptowards the 3% mark into year-end. The MAS currently projects core inflation at 2.5%-3.5% this year but could narrow this forecast to2.5%-3.0%.
Singapore's above-forecast second-quarter growth of 2.9% prompted the government toupgrade its 2024 GDP growth forecast to 2%-3% from 1%-3%.The Asian Development Bank raised its 2024 Singapore GDP forecast to 2.6% on Wednesdayfrom 2.4% in April.
USD/SGD slidto a 10-year low at 1.2822 Wednesdayon a double-whammyof the Fed's large rate cutand China's aggressive stimulus measures. However, with the U.S. economy still buoyant, USD/SGD will likely end the year nearthe 1.3000 handle.
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Catherine Tan is a Reuters market analyst. The views expressed are her own. Editing by Sonali Desai and Ewen Chew
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