- The Monetary Authority of Singapore warned of ongoing risk factors piling up on the nation’s financial vulnerabilities in the corporate, housing and banking sectors.
- “Given weakening external demand, Singapore’s economy is expected to slow to a below-trend pace in 2023,” MAS said in a report.
- It also said: “Inflation is expected to remain high, supported by a strong labor market and the continued transmission of high imported inflation.”
Singapore’s economy is likely to face ongoing pain from global financial worries, although the country’s core inflation eased somewhat in October.
The Monetary Authority of Singapore warned of lingering risk factors piling up on the nation’s financial vulnerabilities in the corporate, housing and banking sectors – citing weaker demand and ongoing inflationary pressures.
“Given weakening external demand, Singapore’s economy is expected to slow to a below-trend pace in 2023,” the central bank said in its latest Financial Stability Review report. “Inflation is expected to remain high, supported by a strong labor market and the continued carry-over of high imported inflation.”
The central bank warned of contagion risks from global markets, saying the country’s corporate, household and financial sectors should “remain vigilant” amid macroeconomic challenges ahead.
“The most immediate risk is a potential dysfunction in major international funding markets and cascading liquidity shortages in non-bank financial institutions that could quickly spill over to banks and corporates,” it said.
The report comes days after the nation reported some easing in October inflation data. Singapore’s core CPI, while still at a 14-year high, is up 5.1% mom, down from September’s 5.3%.
Singapore has no explicit inflation target, but the MAS sees a core inflation rate of 2% as broadly reflecting “overall price stability”. The country’s October core CPI is also well above this level, as is the central bank’s forecast for inflation of “around 4%” for 2022.
Analysts at JPMorgan said they expect core inflation levels to remain elevated through the first quarter of next year, but predict subsequent readings will show further easing. That would give the central bank room to move away from a hawkish stance.
“If this forecast comes true, it would indicate that MAS has little need to tighten its NEER policy next year,” the company said in a statement.
Minutes from the Federal Reserve’s last meeting, released this week, said smaller rate hikes should come “soon” – an indication that its global peers, including the MAS, may also be taking a breather from their own tightening cycles.
“MAS is also in a similar position — it has tightened monetary policy heavily in 2022 and will want to see the impact,” said BofA Securities ASEAN economist Mohamed Faiz Nagutha.
“This means that a further tightening is not a matter of course, but cannot be ruled out at this point in time,” he said.
However, Nagutha emphasized that the increased inflation will continue for a while.
“MAS is not going to announce it as a success anytime soon, in our view,” he said.
IG’s market strategist Jun Rong Yeap said the same is true of MAS’s competitors in Asia-Pacific.
Although global central banks like the Reserve Bank of Australia and the Bank of Korea have taken small steps in raising interest rates, inflation will remain a key focus, he said.
“Continued price pressures could still lead to a recalibration of how high or how long interest rates need to remain in the restrictive territory,” he said. “And that will come with a bigger trade-off for growth.”