SGD – Still Not Enough To Trigger A Further MAS Move

 SGD – Still Not Enough To Trigger A Further MAS Move

Lackluster Growth; Soft Labor Market & Inflation On The Uptick

      The macroeconomic environment has been subdued amid a soft global environment. The outlook for the domestic economy is unlikely to be significantly different in the next six-to-12 months.  No recession is envisioned for now. Labor market conditions are expected to soften with wage growth moderating. Still, the softer labor market and wage growth in 2016 had been largely anticipated by MAS in its Apr statement. Headline inflation should continue to undershoot its 5-year historical average even as it ticks higher in 2017, while core inflation trajectory remains to the upside, edging closer to its 5-year historical average by end-2017.

Fiscal/Manpower Policy Could Be More Apt

      The SGD NEER has not weakened significantly and there remains room for weakness within the band. A re-centering move by the MAS risk a spike in short-term rates that could undermine already skittish household and business confidence further and hence the economy. Thus, the balance of risks appears to remain slightly biased towards growth and the labor market, but fiscal/manpower support could be more apt to lift growth and cap unemployment/lessen the impact of unemployment given that monetary conditions are already accommodative. We therefore do not expect any change in monetary policy for now.

 

No Change In Forecast

      Expansionary fiscal policy, already accommodative monetary conditions as well as its triple-A status and persistent balance of payments surpluses should backstop the USDSGD and moderate the pair’s climb higher. These though are unlikely to offset completely the impact of a Fed fund rate hike expected at the end of the year and further easing moves by BOJ. We should continue to see the pair edge higher towards 1.3750 by end-2016. The pair should continue its gradual upward trajectory in 2017 on modest Fed rate hikes expectations that could see the pair end-3Q 2017 at 1.3850 before ending 2017 at 1.3900. We continue to stay short on the SGD against the USD, AUD, MYR and IDR.