Singapore Central Bank Gives Itself Room to Tighten in 2018

Singapore’s central bank left its neutral policy stance unchanged on Friday, without re-committing that it remains appropriate for an extended period, giving itself room to tighten next year if necessary.

After easing three times between January 2015 and April last year, the Monetary Authority of Singapore stuck to its neutral stance of zero appreciation in the currency, in line with the forecasts of all but one of the 23 economists surveyed by Bloomberg. The MAS is the only central bank in a major developed nation to use the exchange rate as its main tool.

The MAS referred to comments in its October 2016 statement that the neutral stance would be appropriate for an “extended period,” without explicitly repeating that guidance going forward.

“By dropping that, they sort of change the tone and signal that they could tighten into next year but haven’t yet pulled the trigger,” Michael Wan, an economist at Credit Suisse Group AG in Singapore, said by phone. Similar to policy makers in other developed countries, like the European Central Bank, “they want to give themselves space to tighten if inflation picks up because of stronger growth.”

Even as the MAS keeps its options open, some economists still see no urgency to tighten policy. Wan expects another hold when the central bank makes its next scheduled policy decision in April.

Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore, said in an email that she was surprised by the dovish tone of the statement, which cited slowing growth and modest inflation. That “essentially reinforces that there is no need to jump the gun on tightening,” she said.

Manufacturing Surge

The MAS said economic growth will probably come in at the upper half of the 2 percent to 3 percent forecast range for this year, but expand at a slightly slower pace in 2018. Prime Minister Lee Hsien Loong said in August that he expected growth of 2.5 percent…

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