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Singapore’s inflation may have eased a bit, but the central bank warns that the pain may still remain

Singapore’s skyline from Merlion Park on May 15, 2020.

Roslaan Rahman | AFP | Getty Images

Singapore’s economy could face continued pain from global financial concerns, even though the country’s core inflation eased somewhat in October.

The Monetary Authority of Singapore warned of an accumulation of prolonged risk factors on the country’s financial vulnerability in the corporate, housing and banking sectors, citing weak demand and persistent inflationary pressures.

“Amidst weakening external demand, Singapore’s economy is projected to slow to a downward trend pace in 2023,” the central bank said in its latest statement. financial stability review Report good. “Inflation is expected to remain elevated on a sustained pass-through basis from a strong labor market and higher imported inflation.”

Warning of contagion risks from global markets, the central bank said the country’s corporate, household and financial sectors “must remain vigilant” amid macroeconomic challenges ahead.

“The most immediate risk is a possible dysfunction in key international funding markets and liquidity pressures on non-bank financial institutions that could quickly spread to banks and corporates,” it said.

The report comes days after the country reported some easing in the inflation print for October. While still at a 14-year high, Singapore’s main consumer price index rose 5.1% for the month from a year earlier, down slightly from 5.3% in September.

Singapore does not have an explicit inflation target, but the MAS typically reflects a core inflation rate of 2%. “Overall Price Stability.” The country’s October core CPI is also well above that level as well as the central bank’s forecast of “around 4%” inflation for 2022.

Analysts at JP Morgan said that although they expect the level of core inflation to remain elevated through the first quarter of next year, they anticipate further moderation in upcoming readings. This would leave room for the central bank to move away from an accommodative stance.

“If this forecast materialises, it would suggest that MAS may not need to tighten its NEER policy next year,” the firm said in a note.

Peak Hawkishness?

Minutes of the latest Federal Reserve meeting released this week said a small interest rate hike should happen “soon” – a sign that its global peers, including the MAS, may be taking a breather from their own tightening cycles. Can

“The MAS is in a similar position – it has heavily tightened monetary policy in 2022 and is keen to see how that plays out,” said Mohd Faiz Ngutha, economist at BofA Securities ASEAN.

“This means there is no room for further tightening, but it cannot be ruled out at this point of time,” he added.

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However, Ngutha stressed that elevated inflation would continue to be pervasive for some time.

“MAS won’t be declaring it a success anytime soon,” he said.

IG Markets Strategist Jun Rong Yep said the same applies to MAS’ peers in the Asia-Pacific region.

He said that although global central banks such as the Reserve Bank of Australia and the Bank of Korea have taken small steps to raise interest rates, inflation will remain a major focus.

“Remaining under pricing pressure may still be a drive for how high or how long interest rates stay in restrictive territory,” he added. “And that will come with more trade-offs for growth.”

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