Escalating oil rout might push MAS to ease policy stance: HSBC

Prices have fallen below its original forecast.

Unexpectedly weak oil prices might push Singapore’s central bank to ease policy again in October, according to a report by HSBC.

The Monetary Authority of Singapore uses a USD40-70 WTI crude oil assumption for its current 2015 inflation forecasts. With WTI price dropping below this range in recent days, HSBC noted that there are increased downside risks to the central bank's core CPI forecast of 0.5-1.5%.

“Recent comments suggest that the MAS still expects this pass-through to materialize in 2016. However, the strong downward revision of most Singapore GDP growth forecasts in recent weeks could cause the MAS to re-think its assumptions prior to the October MPS,” HSBC said.

Although HSBC still expects the MAS to keep its policy unchanged in October, rising downside risks to inflationand deteriorating domestic and external conditions increases the chances of easing.

“We believe that the drop in WTI below USD40 has implications for monetary policy. However, the 2016 inflation outlook is what matters most for the MAS; in particular the assumptions concerning wage pass-through,” the report said.

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