Deutsche Bank-Asia Economic Notes Singapore No hurry to ease-110573442

2 October 2024The MAS is not in a hurry to ease in its upcoming October meeting, in our view. Recent data on industrial production point to better-than-expected headline growth in Q3, which drove our 2024 growth forecast to 2.6% from 2.4% previously. Moreover, while the broader disinflationary trend is intact, core inflation remains sticky, and labor market tightness persists.Nonetheless, this does not change our view that GDP growth will slow to 2.2% in 2025 amid the more subdued economic outlook for Singapore’s trade partners, as well as rising protectionist sentiment globally that could drag on the trade-centric economy in the coming year. We maintain our view that the MAS will ease in January.We find no conviction in either a S$NEER or a rates trade at this point.nS$NEER is trading around 1.80-1.85% above the mid-point, by our estimate, which we cannot argue against or for at this point. For sure, the NEER position within the band argues for tactically shorting the SGD vs the basket, even as US FCI easing suggests stronger S$NEER ahead.nWe also find as fair the probabilities around future S$NEER slope reduction implied by the forward path for the SOFR-SORA curve, which is now creating the chance of easing at the January meeting, and an above-50% probability at the April 2024 meeting.We are also taking this opportunity to optimize our DB S$NEER proxy model.Junjie HuangEconomist+65-6423-6699Vaninder Singh, CFAMacro Strategist+65-6423 8947Bryant XuStrategist+65-6423 5558Deutsche Bank AG/Hong KongIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.Deutsche BankResearch Asia Singapore Economics Asia Economic Notes Date Singapore: No hurry to easeDistributed on: 02/10/2024 09:06:03 GMT7T2se3r0Ot6kwoPa2 October 2024Asia Economic NotesPage 2Deutsche Bank AG/Hong KongEconomicsWaiting for the right time to easeWe think the MAS has little urgency to ease in October amid sticky core inflation, a tight labor market and better-than-expected economic activity, unlike some of its peers who have begun their easing cycle alongside the Fed. Instead, we think the MAS will opt for a gradual reduction of the policy band slope in January and April to support growth while preventing core inflation from reversing its disinflationary trend too quickly. A change in the band level is unlikely, in our view, barring unexpected shocks, given MAS’ assessment that the output gap was only “slightly negative” and would close by end-2024.Core inflation rose to 2.7% YoY in August from 2.5% in July, showing its relative stickiness even as the broader disinflationary trend remains intact. (Figure 1) Sustained demand for outbound tourism packages has kept services inflation elevated, as residents take advantage of the stronger Singapore dollar for leisure travel. We expect headline inflation in 2024 to come in at 2.6% Yo