Singapore central bank seen likely to ease policy in October: Reuters poll

Singapore central bank seen likely to ease policy in October: Reuters poll

SINGAPORE (Reuters) - Singapore's central bank will probably ease monetary policy in October due to the rising risk of a recession and downside risks to the inflation outlook, a Reuters poll showed.

Twelve of 18 analysts surveyed said their baseline expectation is for the Monetary Authority of Singapore (MAS) to ease its exchange-rate based policy in October.

The others expected no easing, though two said the MAS is likely to widen the Singapore dollar's policy band to accommodate higher market volatility.

In a Reuters poll in mid-August, only three of 11 had predicted a policy easing in October.

Weak data since then has increased the risk that the economy would contract for the second consecutive quarter in July-September, meeting the technical definition of a recession.

Industrial output shrank more than expected in July and August, while exports fell in August as shipments to China declined.

Annual core inflation in August unexpectedly slowed, nearing a five-year low set in May. The all-items consumer price index has fallen from a year earlier for ten straight months.

"We expect the MAS to ease at the October policy meeting... in response to the probable recession and absence of inflationary pressures," Hak Bin Chua, economist for Bank of America Merrill Lynch, said in a research note.

The MAS decision, and the government's advance estimate of third-quarter gross domestic product, are expected to be announced around mid-October.

The MAS surprised investors in January by easing policy in an off-cycle move. It then kept policy unchanged in April.

The MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).

Against the U.S. dollar alone, the Singapore dollar has fallen 7 percent so far this year in the face of persistent strength in the greenback and a weakening outlook for emerging economies.

Among those economists who expect easing, views are split on whether the MAS will reduce the slope of the band, lower the mid-point, or do both.

Some expect the MAS to shift from a stance of allowing a "modest and gradual" appreciation of the Singapore dollar NEER policy band to a neutral stance.

CIMB Private Banking economist Song Seng Wun is among those who say a lower mid-point is more likely.

"MAS may ease further in the October policy review especially since there are downside risks to both GDP and inflation outlook for Singapore," Song said.

Singapore's monetary policy is focused on the exchange rate, instead of interest rates, due to the trade-dependent nature of its economy.

(Reporting by Masayuki Kitano; Editing by Kim Coghill)