Here's why MAS is more likely to hold its monetary stance steady

Factory output expands for the first time this year.

Singapore's central bank will probably hold off from further monetary easing at its upcoming policy review, with improved manufacturing output last month mitigated slowdown in 2H, said OCBC Bank.

The manufacturing PMI improved 0.3 points to 50.1, above the 50 handle for the first time since Jun15 as new orders, new export orders and production gauges rose to above the 50 handle into expansion zone for the first time since Jun15, Jan15 and May16 respectively.

The electronics PMI also clocked its second straight month in expansion territory to edge up 0.1 point to 50.3 amid higher new orders, new export orders and factory output.

The Nikkei Singapore PMI also strengthened further from 52.3 in Aug to 52.9 in Sep, the highest since Feb15 and marking the fifth straight month in expansion territory amid stronger output (58.2 which is the highest since Nov15) and new orders (highest since Jun14).

Bank loans growth also surged 1.1% mom (-1.6% yoy) to hit a 9-month high of $603.85b in Aug.

OCBC Bank tip 3Q16 GDP growth at +2.0% yoy (+0.8% qoq saar), and in turn our full-year 2016 growth forecast at +1.9% yoy.

Headline inflation also eased to -0.3% yoy (+0.5% mom nsa) while core inflation was steady at +1.0% yoy in Aug.

OCBC Bank believes MAS is likely to keep its monetary policy settings unchanged at the upcoming review given the still comfortable buffer for growth and inflation trajectories out for the next six months.

Crude oil prices, in particular, hover closer to the US$50 handle rather than the sub-$40 handle at the April review. The $2.2b 5-year SGS bond auction fetched a 2.09x bid-cover ratio and a cut-off yield of 1.32% with a tight 3bp tail.

For the optional mini-auction, there is a 30-year SGS bond re-opening on 1 Nov, with size details on 20 Oct and auction on 27 Oct.