The Monetary Authority of Singapore has decided to keep rates as it is, MAS maintained the prevailing rate of appreciation of the S$NEER, and kept the width and level of the band unchanged at the April policy meeting. This was the fourth hold
following 5 consecutive tightening moves since Oct 2021, in line with expectations says Maybank IB.
The house said it thinks MAS will ease policy only in October at the earliest, via a gentler S$NEER slope. The authority reiterated that current monetary settings remain appropriate and sufficient to ensure medium-term price stability. The current rate of appreciation is necessary to restrain imported inflation and domestic cost pressures. MAS remains vigilant on inflation, maintaining its view for core inflation to remain elevated in the earlier part of the year. The central bank mentioned that inflation should stay on “its broadly moderating path” and step down in 4Q, before falling further in 2025.
Inflation to Remain Sticky Until 4Q, GDP Outlook Should Brighten in Coming Quarters
MAS maintained its forecast range for core and headline inflation at 2.5%-3.5% in 2024. It mentioned that the uptick in Jan-Feb core inflation (3.4% vs. 3.3% in 4Q) was lower than expected due to a decline in food and travel-related services inflation. “Underlying inflation” )excluding impact of GST hike) was estimated to be unchanged from 4Q. Similar to our
expectations, MAS thinks core inflation will stay around current levels in the near term, as water prices were hiked in April (+7.3%) while prices of certain services such as education and healthcare will continue catching up with higher business costs.
Nonetheless, MAS said it expects a sustained moderation in imported and domestic cost pressures. Global prices of most food commodities as well as intermediate and final goods remain subdued, although crude oil prices have risen over the past three months. MAS expects unit labour costs to rise at a significant slower pace in 2024, as wage growth eases and labor
productivity picks up.
On GDP growth, MAS expects the outlook to brighten over the course of 2024. Manufacturing and financial sectors should resume their recovery, supported by the electronics cycle upturn and easing global interest rates. Growth in the domestic-oriented sectors is expected to normalize and slow towards pre-pandemic rates.
1Q Advance GDP Above Expectations, But Growth is Uneven
According to advance estimates, 1Q GDP growth accelerated to +2.7% (vs. +2.2% in 4Q), although the economy grew by a slower +0.1% (vs. +1.2% in 4Q) on a quarter-on-quarter seasonally adjusted basis. Growth came in slightly above our expectations (2.5%), but was somewhat uneven. The manufacturing and electronics recovery is slower than expected.
Services is buoyant because of visa waivers for China tourists, stronger trade-related services and a “Taylor Swift” boost.
Manufacturing growth slowed to +0.8%, from +1.4% in 4Q. The 1Q manufacturing flash estimate suggests that industrial production fell -1.6% in March from a year ago, its first contraction since Dec 2023. Output of the electronics, biomedical manufacturing and general manufacturing clusters contracted in 1Q, although this was more than offset by expansions
in chemicals, precision engineering and transport engineering.
In view of the latest move by MAS, Maybank IB has raised its 2024 GDP growth forecast to +2.4% (from +2.2%), in view of the stronger-than expected 1Q flash estimates. The GDP forecast stands at the upper end of MTI’s 1%-3% forecast range.
The outlook it said is predicated on a recovery in manufacturing and trade-related sectors, as exports rebound from their deep slump in 2023. The Red Sea tensions have acted as a speedbump to the manufacturing recovery, but should not be a roadblock in the absence of a broader Middle East conflict. Global container freight rates have been cooling from their late-January peak, while manufacturers and shippers are adapting to the disruptions in their supply chain.
Consumer and tourism-sensitive services were buoyed by the strong comeback in revenge travel in the first quarter. That said, momentum may lose some steam for the rest of the year with the near-complete normalization in tourist arrivals (to pre-pandemic levels) and fading of the “Taylor Swift” boost. Moreover, elevated inflation has prompted some households to tighten their belts, while the strong Singdollar is encouraging locals to divert their spending budgets abroad.
