(July 24): Singapore’s subdued inflation will likely allow the central bank to maintain its monetary policy settings on Monday, while it assesses the potential impact of a resurgence in the US-Iran conflict.

Thirteen out of 18 economists in a Bloomberg survey expect the Monetary Authority of Singapore (MAS) to leave its policy unchanged at its quarterly review on Monday. Four analysts see a steepening of the currency band, while one expects a re-centring. 

While most central banks use interest rates, Singapore maintains medium-term price stability by managing its currency against a trade-weighted basket — known as the S$NEER — within an undisclosed target band.

After a preemptive round of tightening in April during the worst of the oil shock, policymakers have room to pause with core inflation so far staying manageable. The closely-watched gauge ticked up to 1.6% in June, at the low end of MAS’ 1.5%-2.5% forecast range for this year.

Still, Singapore’s reliance on imported energy leaves it exposed as the collapse of the peace deal in the Middle East and renewed attacks in the Red Sea push oil prices back toward US$100 a barrel.

“A more uncertain global trade environment continues to justify a cautious, wait-and-see approach as policymakers assess external growth risks,” RHB Bank economists Barnabas Gan and Laalitha Raveenthar said in a note.

Here’s what to watch out for in the MAS’ decision Monday at 8am local time:

The energy shock could yet have a lagged impact on consumer prices. Electricity tariffs, for example, are set to increase by a record 17% starting this month. In previous years, that’s typically stoked housing and utilities inflation, according to RHB.

The potential return of a severe El Niño dry spell could also disrupt agricultural output and push up food prices, it added.

Singapore’s central bank can afford to wait for the inflation trajectory in the coming months before reassessing its policy stance, said Selena Ling, economist at Oversea-Chinese Banking Corp.

With core inflation not yet seen rising to an “uncomfortable extent”, MAS could defer any action until its October meeting, HSBC Holdings plc economist Yun Liu.

Singapore’s economy has remained resilient to the geopolitical uncertainty as demand for artificial intelligence spurs its electronics exports. Gross domestic product expanded 5.7% in the second quarter, well above the full-year projection of 2%-4%.

The question is whether MAS believes this will eventually spur broader inflation pressures. The wider-than-expected positive output gap could prompt policymakers to “move preemptively in July to purchase insurance against persistent elevated inflation”, Citigroup Inc economist Kit Wei Zheng said in a report.

Standing pat would raise upside risks to both growth and inflation, forcing MAS to “tighten more aggressively later”, according to Australia & New Zealand Bank Group’s Khoon Goh. He holds an out-of-consensus call for MAS to steepen the slope of its currency band by 50 basis points on Monday.

“Even if the MAS stands pat on July 27 as per our base case, the tone of the upcoming monetary policy statement is likely to sound relatively hawkish,” Barclays plc’s Brian Tan said.

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