Evidence Of Inflation Pressures

SGD: Singapore dollar has weakened further in Asia, USD/SGD last up 24 pips at 1.3467. Resistance is seen at 1.3480 which was challenged several times last week, while the 2021 high at 1.3531 is the next hurdle.

• Data yesterday showed CPI rose above estimates in Feb at 0.7% Y/Y vs estimates of 0.6%, core CPI also beat forecasts at 0.2%. The MAS said much of the increase was driven by a hike in petrol duty, while the increase in core prices was due to an to an increase in services costs as well as higher food inflation. In a statement following the release the MAS said "In the quarters ahead, external inflation is likely to pick up amid the recovery in global oil prices. Notably, Brent crude oil prices have risen further since Q4 2020, supported by output cuts among OPEC+ members. However, continuing negative output gaps in Singapore's major trading partners should cap the extent of the increase in underlying global inflation. On the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued."
• The MAS noted that it would review inflation forecasts in April given the evidence of upward pressures: "The forecast range for CPI‐All Items inflation is being reviewed given the recent sharper‐than‐expected increases in the prices of the non‐core items. A revised forecast range will be released in MAS' upcoming Monetary Policy Statement in April."
• Post the release, ING said it expects the MAS to maintain a neutral policy stance despite rising inflation: "We believe the Monetary Authority of Singapore (MAS) will see through the technicals of the base effects behind the rising inflation and continue to focus on supporting growth as the latter could come under pressure from different waves and variants of Covid-19 that have been raging globally. Like most other Asian central banks, MAS is dealing with an implied monetary tightening brought on by higher US Treasury yields driving up domestic bond yields. And the strong US dollar is exerting weakening pressure on the Singapore dollar. Despite this, the S$-NEER has been steady near the mid-point of the MAS's policy band, which suggests that markets aren't pricing in any change to the policy just yet. We expect a neutral policy with a target of zero S$-NEER appreciation to remain in force throughout this year. The next half-yearly MAS policy statement is scheduled for April."