Monetary policy will still be tightened despite GST delay: Economists

Delayed GST hike will not affect change in monetary policy, say experts

Monetary policy will still be tightened despite the decision to push back the highly anticipated goods and services tax (GST) hike, some economists said yesterday.

Consumers will start paying GST of 9 per cent some time between 2021 and 2025, up from 7 per cent.

The exact timing of the raise will depend on the state of the economy, the level of spending increases and how buoyant existing taxes are, Finance Minister Heng Swee Keat said in his Budget speech on Monday.

"But I expect that we will need to do so earlier rather than later in the period," he said.

Standard Chartered Bank said on Monday that it still expects the Monetary Authority of Singapore (MAS) to allow the Singapore dollar to rise modestly when the central bank sets policy in April.

This would be a change from the neutral stance the MAS has been holding for about two years.

"We did not expect the decision to be affected by a GST hike," said StanChart.

Bank of America Merrill Lynch noted that the change in the primary balance suggests the Budget could have a positive impact on the economy. "This makes us even more confident of our call that MAS will likely exit its neutral policy stance in the upcoming April policy meeting. Any exit will most likely be gradual," said the bank.

But ING Asia economist Prakash Sakpal believes the expansionary fiscal policy suggests that the central bank will maintain its neutral policy stance. "Whether growth will be sustained at the 3 per cent-plus pace of the last two years depends on how exports perform, especially after a strong run in the last year," he said.

"Recent export data hasn't been encouraging. And the continued macro-prudential tightening measures for the housing and automobile sectors will keep inflation subdued," he added.

"The MAS is forecasting inflation (only) in a zero to 1 per cent range in 2018.

"This is not cause for concern, nor a strong argument for the central bank to join the global tightening cycle yet."

The MAS sets monetary policy by setting a target exchange rate band for the Singdollar against a trade-weighted basket of currencies.

In its policy statement last October, it kept its policy band at a zero per cent appreciation stance, with the width of the policy band and the level at which it is centred unchanged.

The MAS has been holding a neutral stance since April 2016. - THE STRAITS TIMES