Why MAS snubbed changing the monetary policy again

But its inflation forecasts were cut to 3-4%.

According to OCBC, as widely expected, MAS kept monetary policy unchanged, citing that growth should see a gradual improvement for the rest of the year on the back of an external demand recovery, but cut its headline and core CPI inflation forecasts for 2013 by 50bps to 3-4% (previously 3.5-4.5%) and 1.5-2.5% (previously 2-3%).

OCBC added: MAS noted that imported price pressures have been generally mild, and the pass-through from the domestic labour market tightness to consumer prices has been subdued to date, while anticipated imported inflation from energy and food commodities should be capped, so the modest and gradual appreciation S$NEER policy stance is assessed to be appropriate for containing inflationary pressures, anchoring inflation expectations, and facilitating the restructuring of the economy towards sustainable growth.

"Post-announcement, the USD-SGD continued to trade in a relatively tight range around the 1.2380 handle, and on the stronger side of its S$NEER policy band. Our year-end USD-SGD forecast is 1.2395," it said in a report.

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