No monetary policy change in April by MAS despite hike in inflation

Victor Kang30 Mar 2021

MAS Singapore

Economists do not expect the Monetary Authority of Singapore (MAS) to change its monetary policy despite the hike in inflation and economic recession. 

Despite the hike in inflation, economists do not expect the Monetary Authority of Singapore (MAS) to change its monetary policy in its upcoming semi-annual meeting in April, reported Channel News Asia (CNA).

This comes as the Singapore economy, which registered its worst recession last year due to COVID-19 pandemic, continues to see a patchy recovery.

The MAS manages the economy via the currency, instead of setting interest rates. The central bank allows the exchange rate to float within an unspecified policy band, changing the band’s slope, centre and width when it wants to adjust the pace of the Singapore dollar’s appreciation or depreciation.

During its last policy review, the MAS said it would “maintain a 0% per annum rate of appreciation of the policy band”, adding that its accommodative stance “will remain appropriate for some time” with core inflation set to remain low.

A key indicator used by MAS to guide monetary policy, core inflation rose to 0.2% year-on-year in February, up from -0.2% in January, showed official data last week.

Headline inflation also climbed to 0.7% last month, after reverting to positive territory at 0.2% in January.

Economists, however, believe the central bank will hold back on policy shifts.

Song Seng Wun, Private Banking Economists at CIMB, said that while inflation is picking up, the increase remains “fairly mild” compared to pre-COVID-19 levels.

Moreover, the increase is driven by short-term factors and comes from a low base.

“At the moment, the increase in prices is less due to demand pressure building up but supply disruptions and a low base,” said Song as quoted by CNA.

The economy’s recovery also remains uneven across industries, he added.

Even as Q1 gross domestic product (GDP) posts a “marginal return to the black”, this will “mainly be heavy-lifting by a couple of sectors” that held up amid the pandemic, like the manufacturing sector. The rest, such as aviation and services, remain in the doldrums.

“Even if inflation forecasts are revised upwards, we still see MAS standing pat for now until they are more comfortable with the quality of the recovery,” said Song, who expects Q1 GDP to marginally grow by 0.3% year-on-year.

Maybank Kim Eng economists also predict the MAS to remain patient despite the inflation risks and expect it to maintain a neutral policy at its April meeting.

“The economic recovery is sluggish and real GDP remains below pre-pandemic levels,” they said.

Barclays Bank economist Brian Tan does not expect the central bank to further ease its policy considering that the worst of the pandemic has passed, with vaccination programmes underway.

He added that Singapore’s underlying export momentum “remains solid”, while labour market conditions are improving.

As such, he does not expect a policy tightening since the resumption of international travel remains uncertain.

“Our base case is that policy tightening is more likely to begin in April 2022. While we note the risk of an earlier move in October 2021, its probability seems low,” said Tan as quoted by CNA.

Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this story, email:


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