By Amanda Lee, Fabiana Negrin Ochoa and Kimberley Kao
SINGAPORE--Singapore's central bank kept its monetary policy unchanged as it cautioned that inflation is set to stay high for at least a few quarters.
The decision came as advance estimates for the city-state's economic growth in the first quarter missed expectations, but not enough to cause much concern among analysts.
After standing pat for a fourth straight time, the Monetary Authority of Singapore said Friday that the current settings are needed "to keep a restraining effect" on imported inflation and domestic price pressures.
It kept its inflation forecast for both core and headline inflation at an average of 2.5%-3.5% for the year, expecting pressures to cool more in the final quarter.
MAS maintained the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band, aiming to underpin medium-term price stability. No changes will be made to the width and level at which the S$NEER policy band is centered.
Unlike most central banks, the MAS uses currency as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.
To do this, the Singapore dollar operates under a managed float-currency regime based on a basket of currencies representing the city-state's major trade partners. The rate is allowed to trade within an undisclosed band.
The Singapore dollar was little moved by the decision, but could get support from the central bank's continued tight policy stance. USD/SGD was last at 1.3574.
Friday's decision was in line with the expectations of economists and surveyed by The Wall Street Journal, who think the central bank will wait to see more evidence that inflation has stabilized before making any moves.
If core inflation shows signs of softening earlier or more sharply than expected, easing at the bank's July or October meetings could be fair game, said Selena Ling, chief economist and head of global markets research & strategy at OCBC.
"But [this] is not our base scenario at this juncture," Ling told Dow Jones Newswires.
Other central banks are also hesitating to pull the trigger on policy easing as recent inflation prints have been bumpy and more buoyant, especially with the rise in crude-oil prices, OCBC said.
It's a delicate balancing act between inflation, growth and currency stability. While inflation across Asia-Pacific is moderating, progress has been choppy, and domestic conditions remain soft, Moody's Analytics economists Stefan Angrick and Jeemin Bang said.
A key concern is that an early pivot could further pressure Asian currencies, which have been buffeted by a stronger U.S. dollar, among other factors.
"We don't expect APAC central banks to leapfrog the Fed on rate cuts; the possibility that they will err on policy that is too tight is an important concern," they said.
South Korea, New Zealand and Thailand all held rates steady at their meeting this week, in line with most of their peers. Most economists pencil in the start of easing for the second half of the year, if at all.
In Singapore, a relatively resilient economic backdrop would add to the case for a continued hold, said Barnabas Gan, acting group chief economist and head of market research at RHB Research.
Friday's advanced estimates showed that the economy picked up in the first quarter of the year, though not quite as much as analysts had been expecting.
Ministry of Trade and Industry data put growth at 2.7% in the quarter from a year earlier, undershooting the 3.0% expected by economists in a WSJ poll. Growth tumbled on a quarterly basis, seasonally adjusted basis, rising just 0.1% in a sharp deceleration from the 1.2% expansion seen in the fourth quarter. That also missed the consensus view in the WSJ survey.
Still, the year-over-year pace was faster than the 2.2% growth seen in the final quarter of 2023, and could firm up the prospects for stronger growth this year.
A bright spot was the services sector, which accounts for around two-thirds of the economy, Goldman Sachs strategists said in a note. They bumped up their full-year real GDP growth forecast for Singapore to 2.2% from 2.1%.
Strength in services was offset in part by a slowdown in manufacturing and construction.
Many economists continue to view Singapore's economic growth prospects as fairly solid, echoing the view of the central bank, which said it expects to see continued improvement this year.
The upswing in the global technology cycle, aided by the artificial-intelligence boom, is poised to benefit electronics exports-oriented economies like Singapore, analysts say.
"Global growth is expected to turn a corner in the second half of the year, which [will] be a tailwind for electronics exports," Denise Cheok, assistant director and economist at Moody's Analytics, told Dow Jones Newswires.
Barclays economist Brian Tan and strategist Audrey Ong expect full-year growth to come in at the upper half of the official growth forecast range of 1.0% to 3.0%, they said in a report.
"We continue to view the export outlook as being relatively positive, pulled upward by the expected semiconductor upcycle, even if this is likely to remain choppy."
Focus now turns to Singapore trade figures for March due next week, which will shed more light on whether the export-oriented economy is picking up steam.
--Ronnie Harui contributed to this report
Write to Kimberley Kao at kimberley.kao@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
04-12-24 0321ET
