Singapore Dollar: Labour slack limits MAS tightening risk – UOB
UOB’s Jester Koh assesses Singapore’s soft labour market and its implications for Monetary Authority of Singapore policy. The Labour Market Pressure Index shows rising slack, which UOB links to weaker passthrough of supply-side shocks into inflation.
UOB's Jester Koh observes Singapore's soft labour market and its impact on the Monetary Authority of Singapore's (MAS) policy. The Labour Market Pressure Index (LMPI) indicates rising slack, which could weaken the transmission of supply-side shocks to inflation. Consequently, UOB anticipates MAS to maintain current S$NEER (Singapore Dollar Effective Exchange Rate) settings, with only a limited risk of further slope steepening to counter imported inflation.
Currently, UOB expects MAS to keep its S$NEER policy settings, with the slope at an estimated 1.25% p.a., following tightening moves in April and July. However, there is a slight risk of a 25bps slope steepening in either October 2026 or January 2027 MPS (Monetary Policy Statement) to address imported inflation risks, especially due to recent reacceleration in energy prices and strengthening food inflation momentum.
Core and services inflation have shown strong correlation with the LMPI, implying that labour market weaknesses could temper supply-side shocks' passage into consumer prices, including energy and food inflation pressures from the Middle East conflict and an impending Super El Niño. These shocks may not necessitate the aggressive tightening witnessed in 2021-2022, when MAS tightened policy five times, including three upward re-centring moves.
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