Headline inflation slowed to 0.6% y/y while core inflation, which excludes cost of accommodation and private road transport, eased slightly to 1.2% y/y in June, marking a two-year low. Meanwhile, the economy grew at its slowest annual pace in a decade in 2Q2019 by 0.1% y/y and -3.4% q/q. It now raises the bet for the economy to fall into technical recession.

In our view, the risk of a monetary easing has definitely risen and is not unexpected. We expect the Monetary Authority of Singapore (MAS) to loosen its exchange rate monetary policy in its next policy statement, due in October. MAS will likely ease to a neutral or zero bias (from a current modest and gradual appreciation stance) given the risk of a technical recession and subdued inflation. A neutral or zero bias means setting the rate of the dollar's appreciation to 0% against a basket of currencies.

• Headline inflation slowed to 0.6% y/y in June from 0.9% y/y in May, missing market expectations of 0.7%. On the same note, core inflation, which excludes cost of accommodation and private road transport, eased slightly to 1.2% y/y in June from 1.3% y/y in May as electricity and gas prices declined, marking a two-year low.

• Meanwhile, the economy grew at its slowest annual pace in a decade in 2Q2019 by 0.1% y/y and -3.4% q/q. It now raises the bet for the economy to fall into technical recession. And core inflation is the Monetary Authority of Singapore's (MAS) preferred price gauge in setting monetary policy. It is at such a low reading.

• In our view, the risk of a monetary easing has definitely risen and is not unexpected. We expect MAS to loosen its exchange rate monetary policy in its next policy statement, due in October. In other words, MAS will likely ease to a neutral or zero bias (from a current modest and gradual appreciation stance) given the risk of a technical recession and subdued inflation. A neutral or zero bias means setting the rate of the dollar's appreciation to 0% against a basket of currencies.

Source: AmInvest Research - 24 Jul 2019