reporter2
10-03-22, 09:48
Ukraine crisis, inflation fears fuel market chatter about early central bank action
Russian invasion expected to raise costs beyond earlier estimates; 'stagflation' spectre looms
Mar 10, 2022
WITH inflation fears worsening as war rages in Ukraine, some economists have speculated that Singapore's central bank could make an early or off-cycle monetary policy move ahead of its April meeting.
Already, the spectre of higher inflation - driven mainly by rises in energy and food prices - was almost unanimously cited as a risk to the economy in a quarterly survey from the Monetary Authority of Singapore (MAS) on Wednesday (Mar 9).
Respondents raised their estimates for headline inflation to 3.6 per cent for the full year, from 2.1 per cent in the last poll. Full-year core inflation, which excludes private transport and accommodation costs, was pegged at 2.7 per cent, up from 1.8 per cent before.
The war in Ukraine, invaded by Russia late last month, has resurfaced geopolitical tensions as a concern for economists, and is expected to put upward pressure on fuel and food costs as well.
Senior Minister Tharman Shanmugaratnam, who is in charge of the MAS, has called the situation unprecedented in terms of supply-side disruptions, the sanctions imposed on Russia, and "price increases of this speed and scale".
"We have to plan for a range of scenarios, but tilted very much towards the downside: higher and more persistent inflation and slower growth," he said of the ramifications in a speech on Wednesday.
Moody's Analytics economist Denise Cheok commented: "Supply chains were already strained from the Covid-19 pandemic, and this latest shock has caused freight costs to skyrocket." She noted that actual core inflation may come in ahead of earlier expectations as a result of the crisis in Ukraine - raising the need for policy tightening.
Cheok does not expect the MAS to take action before the consumer price index print for February is released on Mar 23, but told The Business Times that "another off-cycle move will not be surprising... if February's headline inflation comes in at mid to high 4 per cent".
The MAS already startled markets in January with a "pre-emptive adjustment" to the Singapore dollar nominal exchange rate (S$NEER) band's slope, after core inflation hit a 7-year high in December 2021.
Not long before, the MAS had moved its half-yearly policy review from April 2020 to end-March 2020 - tweaking both the slope and mid-point of the band at the start of the recessionary Covid-19 pandemic.
Jung Sung-Eun, senior economist at Oxford Economics, has now suggested that the MAS might take a similar step again - "bringing it forward rather than adding an off-cycle move", no thanks to the war.
Still, not all analysts expect an earlier decision, since "the S$NEER has retreated from the top side of the band", as Maybank senior economist Chua Hak Bin told BT.
Selena Ling, chief economist at OCBC, also retained a base case of a scheduled review in April. She and Chua remarked that the MAS will be paying attention to the risk of "stagflation" - when inflation is high but economic growth has slowed.
In particular, Chua noted that the Ukraine war raises the risk of a sharp slowdown, even as inflation "will continue to rise and remain at uncomfortably elevated levels".
But, regardless of when the decision comes, the MAS is expected to tighten monetary setting, likely by putting the S$NEER on a steeper path of appreciation, as in January.
"We now think the MAS will likely adjust the slope up more aggressively than what we thought previously," Jung added, tipping an increase of 1 percentage point, instead of 0.5 point. "The price pressures are higher now than what we thought prior to the war."
Re-centring the S$NEER band is another option that Chua said "will provide more room for the Singapore dollar to appreciate and contain imported inflation pressures".
In the latest MAS poll, a sharper-than-expected rise in inflation - which would prompt faster monetary tightening by major central banks - was named a downside risk to the Singapore economy by 94.4 per cent of respondents, up from 55.6 per cent in December 2021. Inflation was also cited as the biggest economic risk by 38.9 per cent.
Meanwhile, potential escalation in geopolitical tensions was flagged as a risk by 55.6 per cent of respondents, up from nil before.
Specifically, "respondents were concerned about downside risks from geopolitical tensions associated with the Russia-Ukraine conflict", the MAS noted in its report.
OCBC's Ling said she could raise her full-year inflation forecasts to 4.2 per cent for headline inflation, from 3.5 per cent before, and to 3.5 per cent for core inflation, from 2.7 per cent before - "unless there is a near-term and quick resolution to the geopolitical uncertainties".
The survey reflects the views of 23 professional forecasters, and not the MAS' own. The survey was sent out on Feb 17, 2022, and all the responses came in after the war in Ukraine broke out on Feb 24.
Russian invasion expected to raise costs beyond earlier estimates; 'stagflation' spectre looms
Mar 10, 2022
WITH inflation fears worsening as war rages in Ukraine, some economists have speculated that Singapore's central bank could make an early or off-cycle monetary policy move ahead of its April meeting.
Already, the spectre of higher inflation - driven mainly by rises in energy and food prices - was almost unanimously cited as a risk to the economy in a quarterly survey from the Monetary Authority of Singapore (MAS) on Wednesday (Mar 9).
Respondents raised their estimates for headline inflation to 3.6 per cent for the full year, from 2.1 per cent in the last poll. Full-year core inflation, which excludes private transport and accommodation costs, was pegged at 2.7 per cent, up from 1.8 per cent before.
The war in Ukraine, invaded by Russia late last month, has resurfaced geopolitical tensions as a concern for economists, and is expected to put upward pressure on fuel and food costs as well.
Senior Minister Tharman Shanmugaratnam, who is in charge of the MAS, has called the situation unprecedented in terms of supply-side disruptions, the sanctions imposed on Russia, and "price increases of this speed and scale".
"We have to plan for a range of scenarios, but tilted very much towards the downside: higher and more persistent inflation and slower growth," he said of the ramifications in a speech on Wednesday.
Moody's Analytics economist Denise Cheok commented: "Supply chains were already strained from the Covid-19 pandemic, and this latest shock has caused freight costs to skyrocket." She noted that actual core inflation may come in ahead of earlier expectations as a result of the crisis in Ukraine - raising the need for policy tightening.
Cheok does not expect the MAS to take action before the consumer price index print for February is released on Mar 23, but told The Business Times that "another off-cycle move will not be surprising... if February's headline inflation comes in at mid to high 4 per cent".
The MAS already startled markets in January with a "pre-emptive adjustment" to the Singapore dollar nominal exchange rate (S$NEER) band's slope, after core inflation hit a 7-year high in December 2021.
Not long before, the MAS had moved its half-yearly policy review from April 2020 to end-March 2020 - tweaking both the slope and mid-point of the band at the start of the recessionary Covid-19 pandemic.
Jung Sung-Eun, senior economist at Oxford Economics, has now suggested that the MAS might take a similar step again - "bringing it forward rather than adding an off-cycle move", no thanks to the war.
Still, not all analysts expect an earlier decision, since "the S$NEER has retreated from the top side of the band", as Maybank senior economist Chua Hak Bin told BT.
Selena Ling, chief economist at OCBC, also retained a base case of a scheduled review in April. She and Chua remarked that the MAS will be paying attention to the risk of "stagflation" - when inflation is high but economic growth has slowed.
In particular, Chua noted that the Ukraine war raises the risk of a sharp slowdown, even as inflation "will continue to rise and remain at uncomfortably elevated levels".
But, regardless of when the decision comes, the MAS is expected to tighten monetary setting, likely by putting the S$NEER on a steeper path of appreciation, as in January.
"We now think the MAS will likely adjust the slope up more aggressively than what we thought previously," Jung added, tipping an increase of 1 percentage point, instead of 0.5 point. "The price pressures are higher now than what we thought prior to the war."
Re-centring the S$NEER band is another option that Chua said "will provide more room for the Singapore dollar to appreciate and contain imported inflation pressures".
In the latest MAS poll, a sharper-than-expected rise in inflation - which would prompt faster monetary tightening by major central banks - was named a downside risk to the Singapore economy by 94.4 per cent of respondents, up from 55.6 per cent in December 2021. Inflation was also cited as the biggest economic risk by 38.9 per cent.
Meanwhile, potential escalation in geopolitical tensions was flagged as a risk by 55.6 per cent of respondents, up from nil before.
Specifically, "respondents were concerned about downside risks from geopolitical tensions associated with the Russia-Ukraine conflict", the MAS noted in its report.
OCBC's Ling said she could raise her full-year inflation forecasts to 4.2 per cent for headline inflation, from 3.5 per cent before, and to 3.5 per cent for core inflation, from 2.7 per cent before - "unless there is a near-term and quick resolution to the geopolitical uncertainties".
The survey reflects the views of 23 professional forecasters, and not the MAS' own. The survey was sent out on Feb 17, 2022, and all the responses came in after the war in Ukraine broke out on Feb 24.