Goldman Sachs note that “the MAS was amongst the first Asian central banks to normalize policy, which so far has increased the slope of the SGD NEER by a cumulative 1.50%/annum and re-centering the mid-point of the SGD NEER twice. But given the high June inflation prints (which came after July MAS inter-meeting move) we think the MAS will increase the slope of the SGD NEER again by another 50bp to 2.0%/annum at the October meeting. We have fielded several questions in our recent client meetings of whether the MAS will have to tighten more aggressively (i.e. slope increase and re-centering). While more aggressive tightening is plausible, it is not our base case. We expect headline inflation will peak around Q3 this year. We think food price inflation (21% of basket) should ease ahead as global food prices plateau, oil prices have already eased to below USD 100/bbl, which is likely to ease transportation inflation (17% of basket) and the substantial increase of housing supply in 2023 may ease rental inflation (22% of basket) ahead. The risk to our view is to the hawkish side, particularly if the labor market does not cool. The vacancy-to-unemployment ratio is now at 2.4x, which is the highest level since 1997. We estimate that the SGD is around 1.3% above the mid-point of the SGD NEER band (width is +/-2%). Given the risk of further tightening ahead, we continue to like the SGD and maintain our long SGD/TWD trade recommendation.”
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