Key Points
- We expect MAS to keep its exchange rate policy on hold in its meeting this week, to be announced together with the 3Q2023 GDP estimate.
- Despite slowing growth and moderating inflation, the fight against inflation in Singapore has not yet been won. There are still sticky elements of inflation such as soaring COE premiums, water tariff hikes, public transport fare increases, coupled with a 1pp hike in the Goods and Services Tax (GST) in the pipeline. Meanwhile, global commodity prices including oil and rice have been volatile and may add to imported inflation into Singapore in the coming months.
- On the other hand, we expect Singapore’s GDP growth to remain moderate over the coming quarters, with a negative output gap capping underlying inflation pressures into 2024. Economic activity has been weighed down by weakness in exports and manufacturing, but partially offset by resilience in segments such as tourism and construction. In addition, the global economic outlook is increasingly uncertain, with spikes in US rates potentially weighing on global growth, albeit with some stabilisation in China’s economy.
- We think SGD may have some scope to underperform in 2024. The bar to further tightening by the MAS looks quite high given the soft growth outlook, while the next move could see a lowering of the exchange rate band slope. SGD exchange rate valuations are expensive, and S$NEER is currently trading around 1.4% above the mid-point, implying less upside barring a policy change.
- We are forecasting USDSGD at 1.375 in 3 months and 1.32 in 12 months, with the assumption of US Dollar weakness from 2024.
- We think that MAS will likely pencil in a slightly lower MAS core inflation forecast range of 2.5-3.5% for 2024 in the meeting (from 3.5-4.5% for 2023). MTI is likely to pencil in a 1-3% range for 2024 GDP growth, but highlight downside risks to the growth outlook.
- We think 3M SORA should remain relatively stable given ample SGD liquidity, and gradually trend lower assuming the Fed starts to cut rates next year.
