Singapore tax hike reinforces case for MAS to tighten policy

Singapore tax hike reinforces case for MAS to tighten policy

The trade-reliant city-state has already flagged its concern over inflation and the MAS unexpectedly tightened policy in October. A rise in the Goods and Services Tax expected as soon as April is crystallizing expectations that the central bank will act again to help offset the resulting increase in prices.

Singapore’s expected lift in taxes this year is raising strain on the central bank to fix monetary policy as the Southeast Asian country looks to get control over mounting inflation pressures. The Monetary Authority of Singapore, which uses trade rates as its main policy tool, will probably expect to allow the local money to appreciate further at its next arrangement meeting in April, as indicated by 12 analysts’ evaluations compiled by Bloomberg. Strengthening the Singapore dollar would dull the effect of increasing expenses for imports.

Central banks around the world are taking an increasingly aggressive stance toward countering rising prices, with the U.S. Federal Reserve indicating a more hawkish pivot toward policy normalization this year.

“We cannot rule out a more aggressive move if inflation continues to surprise on the upside and the GST hike materializes,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore, who expects a 50 basis point rise in the slope of the MAS currency band.

Analysts at Citigroup Inc., Goldman Sachs Group Inc. and Nomura Holdings Inc. see prospects for a hike of as much as 100 basis points.

In addition to raising the slope of the currency band — which allows for a gradual strengthening — analysts at Barclays Plc expect the entire band to be re-centered higher by 100-150 basis points. A full pass-through of GST into core inflation could require an upward re-centering of 100-200 basis points, according to Citigroup.

An off-cycle tightening before the MAS’s scheduled meeting in April can’t be ruled out, “especially if global central banks start to tighten faster than expected,” Alex Loo, a macro strategist at TD Securities Inc. wrote in a note last week.

Surprising History

MAS has a history of surprising market expectations, including easing policy in 2016 to counter a slowdown in global trade and raising the slope of its currency band “slightly” in October last year amid concerns about rising price pressures. While the MAS doesn’t publicize the slope of the currency band, several economists estimate it at 0.5%. There remain “upside risks” to inflation if GST is hiked to 9% from 7%, Nomura analysts including Euben Paracuelles wrote in a report last week. While a 100-basis point increase is most plausible, the MAS may “possibly increase the slope of appreciation further, if there are further signs that local inflationary pressures may be broadening,” they said.

The Singapore dollar has lost about 0.4% against the greenback since the October decision, mainly driven by strengthening in the U.S. currency on the back of Fed tapering expectations. Economists surveyed by Bloomberg estimate headline inflation accelerated 2.1% last year, the fastest since 2013, and expect it to rise by a further 1.9% this year. The MAS has forecast a rise of 1.5%-2.5% this year, with its core inflation measure gaining 1%-2%.

At the end of last year, Prime Minister Lee Hsien Loong signaled a rise in the GST would be included in February’s fiscal budget announcement, with the country seeking to bolster its balance sheet as it emerges from the worst of the pandemic. Indranee Rajah, second minister of finance, said in parliament Tuesday that an increase can’t be “put off forever” and would rely on overall economic conditions, without giving details on timing. “We believe the MAS will view a GST rate hike as evidence of the government’s confidence in the economic recovery,” Brian Tan, an economist at Barclays, wrote in a note Friday, “which in turn would justify continued normalization in FX policy settings.”

Disclaimer: If you need to edit or update this news from compsmag then kindly contact us Learn more

For Latest News Follow us on Google News


Latest Headlines
  • Show all
  • Trending News
  • Popular By week
PUBG: Battlegrounds is now available for free
PUBG: Battlegrounds is now available for free
To celebrate the relaunch, Krafton is chucking all sorts of rewards at players through Drops events. Players can watch streams, complete in-game missions and ...
Molnupiravir is not covered by the National COVID-19 Treatment Task Force, according to the ICMR
Molnupiravir is not covered by the National COVID-19 Treatment Task Force, according to the ICMR
The decision has been taken after an extensive discussion amongst national experts. Addressing media persons, Dr Bhargava said, “I think we have had an ...
Santa Clara County supervisors consider mandatory mental health treatment for people with serious illnesses |  News
Rise in COVID-19 Cases Drives Gov. Pritzker to Send Rapid Response Teams to Hospitals | Chicago news
Many health care workers have quit, exhausted by a pandemic that is on the verge of entering its third year, while others are in isolation because they ...
Philips sees fourth-quarter earnings down 40% due to parts shortages, fan recall
Philips sees fourth-quarter earnings down 40% due to parts shortages, fan recall
Sales were around 350 million euros lower than Philips had expected, taking comparable sales over 2021 down 1% – while the company had guided for a small ...
Goldman Realizes Stock Rotation Hurts Gain, Taiwan Dollar, Ringgit
Goldman Realizes Stock Rotation Hurts Gain, Taiwan Dollar, Ringgit
“Given the relatively large share of growth stocks in the U.S. market and low conviction on the broad risk outlook due to likely downgrades to Asia growth ...
Medical Matters welcomes Journaling for Health expert Lynda Monk |  community news
Medical Matters welcomes Journaling for Health expert Lynda Monk | community news
After the program, the video will be available on area public access television stations. On CAT-TV, viewers will find the show on channel 1075 at 7:30 ...
Russia considers spending billions of wealth funds on infrastructure
Beverage start-up Lahori receives $15 million from Belgian fund Verlinvest
Verlinvest is a leading global, family-owned evergreen investment group with multi-billion dollar assets under management backed by families who have ...
‘Shark Tank’ investor Kevin O’Leary says today’s cryptocurrency market is like the early days of the Big Tech in the 1990s |  Currency News |  Financial and business news
‘Shark Tank’ investor Kevin O’Leary says today’s cryptocurrency market is like the early days of the Big Tech in the 1990s | Currency News | Financial and business news
O’Leary noted tech stocks’ rough start to 2022 and how that shaped up against performance in the past. “I like growth, and I understand it’s going to be ...
Neobank Kaleidofin Raises $10M in Series B Financing Round
Neobank Kaleidofin Raises $10M in Series B Financing Round
Kaleidofin’s key product lines are: KaleidoGoals, a goal-based savings solution, KiScore, a supervised machine learning based automated credit health check ...
UCF  News Incubation Program, StarterStudio Open New Downtown Entrepreneur Hub
UCF News Incubation Program, StarterStudio Open New Downtown Entrepreneur Hub
“We set out to expand our programs and deemphasize the place as the coworking market matured and commercialized,” says Lilian Myers, executive director of ...
Show next
We will be happy to hear your thoughts

      Leave a reply

      Compsmag - Latest News In Tech and Business
      Logo