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Singapore's Central Bank Gets Tightening Trigger From Budget

A man runs along a promenade past commercial buildings standing in the central business district in Singapore. (Photo: Getty Images)

By Michelle Jamrisko

Singapore’s government may have given the central bank a green light to charge ahead with monetary policy tightening this year.

Economists are more confident in their calls that the Monetary Authority of Singapore will exit its neutral stance as soon as the next scheduled decision in April. They’re encouraged after Finance Minister Heng Swee Keat said Monday that the budget position for 2018 will “remain expansionary” as Singapore incurs a small deficit amid greater spending and delayed tax increases.

“The impulse to the economy is going to be quite positive” on top of already bright growth and job-market prospects, said Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch. “This makes us more confident that MAS will exit its neutral policy in April. We still think it will be very gradual.”

The central bank stuck to a neutral stance in its previous October decision, while giving itself room to tighten policy if necessary. The MAS, which uses the exchange rate as its main tool, eased three times between January 2015 and April 2016.

The projected budget deficit for next year also had Credit Suisse Group AG economists affirming their forecasts for the period. While immediate tax hikes were limited in the budget, giving less of a bump to inflation, the economy has been picking up and consumption is well supported, said Michael Wan, a Singapore-based economist at the bank.

Given that the economy is expected to “do quite well this year, we still think the MAS will tighten exchange-rate policy,” probably in October, he said.

Inflation pressures remain muted, with a report on Friday probably showing consumer prices rose 0.4 percent in January from a year ago, the same pace as in December, according to a Bloomberg survey of economists. The MAS forecasts its core inflation measure, which reached 1.3 percent in December, will average 1 percent to 2 percent this year.

Economists at Goldman Sachs Group Inc. see the fiscal expansion as having a “more muted” impact on growth for 2018 than the numbers suggest, in part because a S$5 billion ($3.8 billion) increase in rail infrastructure funding will probably be spread out over multiple years, according to a research note Thursday. They are sticking to their forecast that the MAS will tighten in October as demand remains strong and inflationary pressures rise.

Eclectic Budget

The overall budget was an eclectic mix, with Irvin Seah at DBS Group Holdings Ltd. calling it a “give and take” document with “some goodies for everyone.”

Fresh taxes – some delayed – were a reminder that Singapore will need to find more revenue for increased spending on healthcare, infrastructure and security in the decade ahead. But enhanced tax cuts, as well as a one-time bonus payment and boost to ministries’ spending this year, were enough to juice an economy that was already looking pretty solid after a strong 2017.

“Singapore’s strong budgetary position and a healthy economy have allowed the government to focus on medium to long-term initiatives,” Christian de Guzman, lead sovereign analyst at Moody’s Singapore Pte Ltd., said in a research note.

Forward thinking was evident in Singapore’s “tailoring the tax system to incentivize innovation, meet the country’s climate change commitments, and acknowledge the rising proportion of economic activity that falls outside of the traditional tax net,” de Guzman wrote.


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To contact the editors responsible for this story: Nasreen Seria at; Chris Bourke

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