Singapore also surprises with sudden pause in monetary tightening... Accelerates easing amid recession concerns

On the 14th, the Central Bank of Singapore unexpectedly halted its monetary tightening policy. Following Canada, which last month became the first among the Group of Seven (G7) countries to pause interest rate hikes, countries including Australia and Singapore are ending their tightening cycles.

The Monetary Authority of Singapore (MAS), the central bank of Singapore, announced in a statement that it would maintain the nominal effective exchange rate (NEER) of the Singapore dollar at its previous level. Singapore manages its monetary policy through the exchange rate rather than the benchmark interest rate, and this marks the first time it has stopped tightening after five consecutive tightening steps since October 2021.

MAS explained the reason for halting tightening, stating, "With increasing global growth risks, the domestic economic downturn may be more severe than expected. Although inflation remains high, the five consecutive monetary tightening policies have eased the upward trend. The tightening policy is having an effect across the economy and is expected to further weaken inflation."

The end of the tightening cycle by the Singapore central bank on this day was an unexpected decision in the market. According to a Bloomberg expert survey, 12 out of 22 respondents expected MAS to continue its monetary tightening stance. Fewer experts, 10 in total, predicted no change in monetary policy. In a previous survey conducted by The Wall Street Journal (WSJ), 9 out of 14 experts anticipated continued tightening, while only 5 expected the policy to remain unchanged.

The Singapore monetary authorities appear to have judged that the economy is more important than inflation, breaking market expectations by stopping the tightening stance. According to the Singapore government, the economic growth rate in the first quarter of this year fell by 0.7% compared to the previous quarter, which is 0.8% lower than the 0.1% growth in the fourth quarter of last year. The cause is the contraction in global goods and investment trade, and the outlook is not optimistic. MAS forecasts Singapore's economic growth rate this year to slow significantly to between 0.5% and 2.5%, compared to 3.6% in 2022. In the worst-case scenario, exports could decline by 2%, and even in the best-case scenario, growth is expected to be 'zero (0) growth.'

Inflation is expected to remain high for the next few months but noticeably slow down in the second half of the year. MAS projected Singapore's overall consumer price inflation rate for this year to be between 5.5% and 6.5%, with core inflation between 3.5% and 4.5%.

Tamara Mast Henderson, a Bloomberg ASEAN (Association of Southeast Asian Nations) economist, said, "Singapore's halt in tightening is a preparation for a sharp global economic downturn. If core inflation slows significantly in the second half as MAS expects, a 'dovish' environment could be established at the October monetary policy meeting."