Singapore's growth and inflation below target

The Monetary Authority of Singapore (MAS) is unlikely to abandon the current policy of appreciating the SGD nominal effective exchange rate (NEER) band at a modest and gradual pace at the upcoming policy review in mid-October. Historically, a shift to a neutral or zero appreciation stance is undertaken only when the economy has clearly entered into an outright recession (not technical recession) and/or deflation. At present, Singapore is experiencing only negative headline CPI inflation and low economic growth in on-year terms. 

Nevertheless, the SGD NEER policy band is expected to be re-centred lower by half a band. This would be equivalent to a one-off 2% devaluation in the band. Since the last policy review on 14 Apr, Singapore's growth and inflation data have fallen below official forecast ranges. The recovery that the MAS had expected earlier this year in the global IT industry did not materialize. Although it narrowed its forecast range for 2015 GDP growth to 2-2.5% in April from 2-4% previously, expect a lower growth of 1.8%. Risks remain for the MAS to narrow its inflation forecast next month. The central bank already served notice on 4 Sep that both CPI and core inflation would come in at the lower end of their forecast ranges, currently -0.5% to 0.5% and 0.5-1.5%, respectively.