MAS Policy Decision: Policy band re-centred higher by 2%
In line with our expectations, the Monetary Authority of Singapore re-centred the policy band higher without changes to the slope or the width. According to our model, the policy band was re-centred higher by 2% (or half the width of the band), double the 1% increases at the last two policy meetings. For 2022, CPI-All Items inflation is expected to come in around 6%, at the top of the previous 5-6% forecast; and the MAS Core inflation at 4%, the top of the original 3-4% forecast. Looking ahead into 2023, the MAS sees CPI and Core inflation averaging 5.5-6.5% and 3.5-4.5% respectively after factoring in the GST increase. According to our model, the SGD NEER is around 0.9% above its mid-point at the time of writing. This is a sweet spot for market participants worried about rising inflation and weaker global growth prospects. In USD/SGD terms, the stronger half of the SGD NEER policy band is estimated to be between 1.4090 and 1.4370. Going forward, we believe the MAS will become more data-dependent in future policy decisions.
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