MAS Seen On Hold Tomorrow

The MAS is expected to remain on hold at tomorrow's policy meeting. This is our own bias and the firm consensus per the Bloomberg survey of economists.

• Market pricing is also relative steady. The first chart below plots the Goldman Sachs SGD NEER estimate, as a deviation from the top end of the policy band. Since late April we have averaged close to -0.44% from the top end of the band.
• Typically, we would expect to see lower levels of the NEER, relative to the band extremes, if market expectations were more heightened in terms of a potential easing.

Fig 1: Goldman Sachs SGD NEER - Deviation From Top End Of MAS Policy Band

Source: Goldman Sachs/MNI - Market News/Bloomberg

• Earlier this week we had inflation data, which surprised on the downside. Headline CPI printed at 2.4% y/y, back near mid 2021 levels. Core CPI was 2.9%y/y, the first sub 3% print since early 2022.
• The second chart below plots y/y headline and core CPI against the y/y changes in the SGD NEER. At face value the discrepancies between the series don't appear large and hence don't warrant a policy response at this stage.
• The central bank would likely want to see further progress on core inflation towards its medium term objective of around 2% before easing policy.
• The growth backdrop has seen volatile trends from the export side, but overall GDP growth is holding close to 3%y/y. This is running slightly above the mid point of MAS's expectations for this year (2-3%).
• One local sell side bank, DBS, sees an MAS easing risk tomorrow, expecting a slightly reduced pace of SGD NEER appreciation, which most analysts have pegged at around 1.5% per annum at the moment.

Source: MNI - Market News/Bloomberg