Need for sustained Sing$ appreciation fades as inflation momentum eases

But most analysts polled believe MAS will not change its monetary policy settings yet

- Ovais Subhani

The battle to bring down inflation has indeed been tough but signals abound that the fight is finally being won.

The strongest indication that the beginning of the end is at hand came on July 23, when Singapore’s central bank said that it will update its all-items consumer price inflation estimate in its monetary policy statement due on July 26.

The review of the Monetary Authority of Singapore (MAS) forecast came in the statement on consumer price developments for June, which showed a surprise retreat in inflation.

The headline all-items consumer price index fell to an annual rate of 2.4 per cent from 3.1 per cent in May. That is the lowest rate since August 2021 and is under the 2.7 per cent forecast in a Bloomberg poll of analysts.

Core inflation – this excludes private transport and accommodation costs – eased to 2.9 per cent, its first drop in three months and the lowest level since March 2022.

The core measure, which best reflects cost pressures on most households in Singapore, was tipped to rise by 3 per cent in the Bloomberg poll.

Still, the market narrative remains unmoved.

Most private analysts polled by Reuters on July 23 believe MAS will leave its monetary policy settings unchanged on July 26. That will mean allowing the trade-weighted Singapore dollar to appreciate.

Unlike most central banks, which manage inflation by setting interest rates, MAS maintains price stability by allowing the value of the Singdollar to move against currencies of its main trading partners within an undisclosed band.

The Singdollar policy band is referred to by MAS as the nominal effective exchange rate (S$Neer).