MAS policy review: Neutral is the new black - Westpac

According to Sean Callow, Research Analyst at Westpac, the MAS's unchanged policy band and growth and CPI forecasts should not surprise anyone but those hoping for a hawkish hint for October are likely to be disappointed by the retention of the line that neutral policy "is appropriate for an extended period."

Key Quotes

“SGD NEER should give up some of its recent gains.”

“The MAS maintained the 0% appreciation pace for SGD NEER that was adopted a year ago and kept the policy band width intact (never disclosed but we assume +/-2%). This was fully expected. The government's growth forecast was also maintained at 1-3% for 2017, with the advance reading for Q1 printing very close to expectations at 2.5% y/y.”

“Also unchanged was the baseline 2017 inflation forecast: 1-2% for core inflation (after 0.9% in 2016) and 0.5-1.5% for headline inflation (up from -0.5% in 2016). Domestic price pressures are judged to remain muted given a softer labour market since the last review in October.”

“On the brighter side, the "outlook for the global economy has improved slightly" since October, including less concern over China, which is deemed to be on a more stable footing with help from corporate profits and supportive fiscal policy.”

“So there was little to move markets in much of the statement, at least until the final paragraph. There had been some market discussion over whether there would be any hint of a return to modest SGD appreciation from October 2017. There was not. The MAS repeated that "a neutral policy stance is appropriate for an extended period". Six months might seem a long time in FX markets but the MAS appears not to expect much to have changed by the next meeting.”

“In this, they remain in the large group of central banks including RBA, RBNZ, BoJ and BoC which see no need to prepare markets for tighter policy this year. The Fed remains lonely on its tightening path.”

“USD/SGD popped up 40 pips to 1.3990 and (on our estimates) SGD NEER dipped from +0.5% to +0.3% versus policy band midpoint in response to the lack of hawkish hints. SGD NEER may drift back to spend more time near the midpoint after rallying from the weak side in February. But the statement and GDP report should not inspire sustained SGD losses.”