We expect the Monetary Authority of Singapore to keep all three parameters – slope, mid-point, and width – of the SGD NEER policy band unchanged on October 14. Per our model, the SGD NEER has averaged 1% above its mid-point this year. At its July review, the central bank lowered its 2024 forecast for CPI-All Item inflation to 2-3% from 2.5-3.5%. However, it kept the policy settings intact alongside its unchanged forecast for core inflation at 2.5-3.5% amid expectations for the slightly negative output gap to close by year-end on better economic performance. 
Since then, the Ministry of Trade and Industry has narrowed the official GDP growth forecast for 2024 from 1-3% to the potential growth rate of 2-3%. We expect advance GDP growth to accelerate to 4.2% YoY (2.2% QoQ sa) in 3Q24 from 2.9% YoY (0.4% QoQ sa) in 2Q24. Core inflation rose to 2.7% YoY in August after falling to 2.5% in July from 2.9% in June. The central bank would want to maintain the prevailing rate of appreciation of the SGD NEER policy band to bring core inflation down to 2% in 2025 before moving into the range the MAS has been historically comfortable with.
USD/SGD may stabilize; it ended overnight at 1.3056 after failing to trade above 1.31. Many Asian currencies may recover after returning some of their third-quarter gains. The future market has aligned its expectations with the Fed’s projection for two 25 bps cuts in November and December. While the US Treasury 2Y yield spiked on Friday’s better-than-expected nonfarm payrolls, it did not deviate from 4% on yesterday’s above-consensus CPI data. Fed officials have played down the data and stuck with the narrative that the US economy and labour market are in better balance today compared to two years ago, increasing confidence for inflation to return to the 2% target in 2025 and the plan to lower rates towards neutral. Japan’s new Prime Minister Shigeru Ishiba clarified that he did not oppose the Bank of Japan’s monetary policy normalization plan. Yesterday, BOJ Deputy Governor Ryozo Himino reiterated the BOJ’s framework to hike rates and reduce JGB purchases if the economy performed according to its projections. Earlier Tuesday, Economic Revitalization Minister Ryosei Akazawa said the new government trusted the BOJ and will work closely with it to end deflation. Heading into the snap election on October 27, the Ishiba government cannot ignore the JPY’s weakness, a factor contributing to the higher cost of living complaints of voters.
Quote of the Day
“I want to throw open the windows of the Church so that we can see out and the people can see in.”
Pope John XXIII
October 11 in history
In 1962, Pope John XXIII opened Vatican II, which brought significant changes to the Catholic Church, including liturgical reforms and increased engagement with the modern world.
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