In Focus
ECONOMY | Staff Reporter, Singapore

Monetary policy to remain unchanged despite February inflation data: analysts

February's inflation figures is the last key data to be released before April's monetary policy meeting.

Inflation sped up in February, driven by private transport prices.

Headline inflation was at 0.7% whilst core inflation, a key consideration in monetary policy, finally hit positive at 0.2%, latest government data showed.

This was preceded by headline inflation breaching positive at 0.2% in January this year, as the pandemic caused prices to deflate in 2020.

February's inflation report is the last major economic data released before the Monetary Authority of Singapore (MAS) policy meeting in April.

Analysts say this could lead to the MAS retaining the current nominal effective exchange rate ($NEER), at 0% per annum.

"The nascent signs of recovery in prices reflects our conviction that there is little reason for more monetary easing," said HSBC Global research in a statement.

HSBC added that improving inflation figures, the vaccination rollout, fiscal support for the vulnerable, and the improving labour market point are signs that Singapore will see an economic recovery in 2021.

"Core inflation, a measure that strips out accommodation and private road transport costs, is expected to stay softat 0.7% in 2021. As such, we stick to our view for MAS to keep the SGD NEER policy-parameters unchanged in the upcoming MAS monetary policy meeting in April," said UOB Global Economics & Markets Research.

OCBC Bank expects the monetary authority to revise up its forecast for 2021 headline inflation to 0.5% to 1.5% from the previous -0.5% to 0.5% in the coming meeting.

"This is realistic given the higher crude oil prices, vaccine-aided recovery and firms potentially passing on higher supply costs (eg. arising from global supply chain disruptions) to end-consumers as consumer demand normalizes further," OCBC said.

Still, it noted that this should not be interpreted as MAS taking an overly hawkish stance, as the risks heightened by the COVID-19 pandemic still remain.

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