2 biggest reasons why MAS is unlikely to ease monetary policy

In spite of lower inflation.

According to Credit Suisse, while the moderation in headline inflation might seem to give the central bank space to ease policy, we doubt the MAS will choose to do so given: 1) a better growth outlook and, more importantly, 2) a labour market that is expected to remain tight over the next two years.

Here's more from Credit Suisse:

As such, our base case scenario is that the MAS maintains the current pace of appreciation (currently estimated at +2.5% per annum), and keeps the width of the exchange rate band unchanged (currently estimated at +/- 1.5%). We have penciled in a 80% probability for this scenario.

We assign low probabilities to two other scenarios: (1) A slight reduction in the slope of the band (10% probability), and a shift to a faster pace of appreciation (10% probability).

With most indicators for global growth improving, we think that Singapore’s labour market would need to deteriorate sharply with the unemployment rate rising substantially and inflation remaining low, to drive the MAS to shift to a slower pace of SGD NEER appreciation.