Will the downshift in growth outlook push MAS to tweak its monetary policy?

The semiannual policy will be announced on 14 Oct.

While downshifts are plaguing Singapore’s growth outlook currently, analysts are pessimistic that they will be large enough to constitute a stepdown in GDP levels.

According to a report by Citi, while weak upstream cost pressures may lead analysts to downplay the oil-price-driven lift in MAS’s core CPI forecast in Jul, the higher inflation forecast in itself is an important signal that MAS is reluctant to ease.

Additionally, Citi said the authorities may lean more heavily on fiscal policy in response to shocks.

“Nonetheless, higher odds of 2016 GDP falling slightly below 1.5% could still favour the NEER falling into the lower half of an unchanged policy band as a form of de-facto easing,” the report noted.

Risks to this view, Citi said, include a sharper downgrade in the growth outlook, need to offset a narrower negative inflation differential vs trading partners via a weaker SGD, so as to keep the REER flat in 2017, and MAS seizing the window provided by lower domestic interest rates, affording more policy space to ease on the FX.

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