The Monetary Authority of Singapore (MAS) is expected to keep its “relatively accommodative” policy settings on hold for the rest of 2021, says Fitch Solutions.
This is to avoid derailing the ongoing economic economy, which is “not as strong” as seen due to the low base effects in 2020.
Certain sectors – especially travel and travel-related ones – are likely to remain under pressure and will continue to weigh on the economy, considering travel restrictions are unlikely to be lifted till later in the year.
At its last meeting on April 14, the central bank kept its slope, width and mid-point of the SGD nominal effective exchange rate (S$NEER) policy band unchanged.
See also: Chinese EV market will remain largest in the world from 2021 to 2029: Fitch Solutions
The team at Fitch says it shares MAS’s view that inflation is likely to pick up and will likely ease in the 2H2021 amid easing from the low base effects from 2020.
To this end, the team expects 2021 GDP growth to rebound beyond the trend levels to 6.1%, compared to the government’s forecast of 4% to 6%.
This, they say, is attributable to the low base effects in 2020, which saw a 4.8% contraction, rather than strong economic activity.
The Singapore dollar (SGD) itself has provided little impetus to tighten or ease so far, which is likely to remain close to the mid-point in the S$NEER policy band set by the MAS, according to data compiled by Goldman Sachs.
For more stories about where the money flows, click here for our Capital section
The team at Fitch has also upped its average consumer price inflation (CPI) forecasts for 2021 to 1.6% y-o-y from 1.0% y-o-y previously.
“Our inflation forecast now sits nearer the upper band of the MAS’ revised forecast range of 1.0% to 2.0% in 2021 (compared to 0.5% to 1.5% previously). Our revision continues to reflect our view for inflation to stay low and not prompt a tightening by the MAS,” writes the team in a July 29 report.
“The revision accounts for the strong performance of the Singapore economy and a quicker tightening of labour market conditions than we previously expected, which is likely to result in a stronger recovery in consumer demand and boost price pressures over the course of 2021,” it adds.
As at 11.54am, the benchmark Straits Times Index (STI) is trading 5.10 points lower or 0.2% down at 3,177.80.
Photo: Bloomberg
