Analysts: MAS may adjust policy before April meeting

According to analysts on Tuesday (17 March), an off-cycle monetary easing by the Monetary Authority of Singapore (MAS) is coming soon given the mounting risks of recession with the sudden unilateral lockdown of Malaysia’s border with the country.

Malaysia enforced a two-week lockdown in order to contain the spread of the Covid-19 pandemic. However, the shutdown will only restrict the movement of Johor residents who work in Singapore, but it will not affect cargo and goods.

Singapore Senior Minister Teo Chee Hean is working with Malaysian Defence Minister Ismail Sabri Yaakob on bilaterally coordinated responses on measures where both countries can collaborate. This is done following the announcement of movement restriction by Malaysian Prime Minister Muhyiddin Yassin.

However, “it may take a couple of days for arrangements to be worked out and to settle down”, according to Prime Minister Lee Hsien Loong on Tuesday.

Based on the statement by Singapore’s Ministry of Foreign Affairs on Tuesday night, the Singapore-Malaysia Special Working Committee is looking to propose and coordinate a joint mitigation plan to ensure that the movement of goods, services, and people between the two countries is safe and sustainable.

DBS Senior Economist, Irvin Seah spoke to The Business Times, stating that such measures are drastic and that “it’s going to exacerbate the downside to the growth outlook – not just to Singapore, but also the global economy”.

The lockdown imposed by Malaysia could affect one-tenth of the Singaporean workforce, with as many as 300,000 travellers passing through Tuas and Woodlands every day, as opined by watchers.

Singapore excluded land and sea checkpoints with Malaysia even as it tightened restrictions on travellers from the rest of ASEAN.

Malaysia has resorted to barring its citizens from exiting the country as per the Monday night announcement, and Prime Minister Lee remarked that it was “not surprising, as many other countries have already imposed similar lockdowns”.

The Covid-19 outbreak in China, when it began, led to an unprecedented wave of factory shutdown which caused factory output for January and February to slide  by 13.5 per cent year-on-year, which also caused unemployment to rise to a record 6.2 per cent.

Economists are downgrading forecasts in the wake of global uncertainties, even as Prime Minister Lee spoke to Singaporeans last week that “we are not locking down our city like the Chinese or Italians have done”.

Although a full-year forecast of 0.3 per cent in 2020 was done by Maybank Kim Eng analysts, senior economist Chua Hak Bin cautioned that the house “may have to take it lower if Malaysia’s shutdown takes a heavier toll on Singapore’s economy”.

In the midst of Covid-19 spread to the US and Europe and the impact on external demand, Barclays Bank’s analyst, Brian Tan downgrade his growth forecast to 0.9 per cent decline from 0.4 per cent. This figure is less than the official forecast range of between 0.5 per cent contraction and 1.5 per cent growth.

The MAS is expected to loosen monetary policy at its upcoming half-yearly meeting on no later than 14 April in preparation for a possible recession.

The mid-point of the policy band in which SGD can be traded is likely to be lowered by the MAS, in addition to taking the SGD’s pace of appreciation to a neutral “zero slope”.

After the news of Malaysia’s lockdown, Citi analysts Kit Wei Zheng and Ang Kai Wei stated, “To the extent that a second fiscal stimulus package is a response to rising growth headwinds, risks of concurrent slope flattening and downward re-centring in April have likely risen.”

In the midst of aggressive, coordinated interest rate cut by other central banks all over the world, from the Bank of Japan to the US Federal Reserve, there are talks of whether the MAS could decide its course of action earlier than its scheduled April meeting.

Me Seah leaned towards the possibility of an off-schedule policy move by the MAS: “If we are staring at a recession risk, the MAS would likely do a two-in-one…Why wait, if this is the kind of scenario that we’re looking at?”

Asian economist at ING, Prakash Sakpal noted that “an easing ahead of the next scheduled policy review in April seems more likely than not” being that the Fed already slashed emergency rate on Sunday (15 March).

Meanwhile, analysts like Mr Tan thought that the MAS could hold off on a move until the meeting is done. Dr Chua also spoke to the Business Times that “April is just around the corner and there is still room for the Singdollar exchange rate to depreciate within the band.”

Mr Seah added that in the case of Singapore, “the government will rely on fiscal measures a lot more than on monetary policy”.

A second stimulus package will soon be introduced by Deputy Prime Minister Heng Swee Keat, who is also Singapore’s Finance Minister. This is around one month after the S$4 billion stimulus package introduced in the Budget last February.

“Given the nature of the present shock, a more aggressive fiscal response … should bear a greater burden of the desired policy adjustment…Over the coming days, we’ll keep a watch on supply shock developments, as well as any impact on food prices,” the Citi analysts remarked.

However, Prime Minister Lee stated on Tuesday that Mr Muhyiddin has given assurance that goods, cargo, and food supply flows between both countries will continue.

In addition to this, Foreign Minister Vivian Balakrishnan remarked that Singaporean authorities “are also working with businesses and enterprises on interim arrangements for Malaysian workers to remain in Singapore while the lockdown is in place in Malaysia”.

Priorities are being given to essential services like logistics, waste and facilities management, security, and healthcare to boost housing support. The Chairman of the American Chamber of Commerce in Singapore, Dwight Hutchins, has asked for exemption from the movement control order for workers in these sectors.

The operational details of maintaining cargo flows are still under works, although housing has been arranged by Singapore for more than 10,000 affected workers, including 2,500 workers in the public transport sector.

The Chief Marketing Officer at the medical device maker Fong’s Engineering & Manufacturing told Business Times that even though the firm has sufficient inventory to last “a few months”, he is still concerned about the supply chain from Malaysia.

However, concerns over labour shortage may be overexaggerated. According to labour economist, Walter Theseira, the “crash in demand” caused by Covid-19 on the retail and food services may be counterbalanced by this shortage of workers.

“But I think there’d still be a lot of dislocation, which can’t be good for the economy,” he added. He also cautioned that factory owners may move production across the Causeway for good if the disruption persists longer.

On the flip side, if firms minimise exposure to Malaysian labour, this will push wages in order to attract Singaporeans or convince commuting Malaysians to reside in Singapore.