MAS expected to step in early as risk of slump rises with Malaysia's lockdown

But some observers say MAS can wait till its April meeting to act, and that Singapore is more likely to lean on fiscal rather than monetary policy

AN off-cycle easing by the Monetary Authority of Singapore (MAS) now looms closer, analysts said on Tuesday, as recession risks rose on the sudden unilateral closure of Malaysia's border with Singapore.

The two-week shutdown, which has been adopted to curb the spread of the deadly coronavirus pandemic, does not affect goods and cargo, but will restrict the movement of Johor residents who work in the Republic.

Senior Minister Teo Chee Hean is working with Malaysian Defence Minister Ismail Sabri Yaakob on bilaterally coordinated responses on measures where the two countries can work together or that will affect each other. This follows the Monday night unveiling of a movement control order by Malaysian premier Muhyiddin Yassin.

Still, Prime Minister Lee Hsien Loong said on Tuesday that "it may take a couple of days for arrangements to be worked out and to settle down".

In a statement late last night, Singapore's Ministry of Foreign Affairs said the Singapore-Malaysia Special Working Committee will propose and coordinate a joint mitigation plan to ensure the safe and sustainable movement of people, goods and services between Malaysia and Singapore.

Calling the snap controls drastic, DBS senior economist Irvin Seah told The Business Times that "it's going to exacerbate the downside to the growth outlook - not just to Singapore, but also the global economy".

With some 300,000 travellers passing through Woodlands and Tuas daily, watchers believe that about a 10th of the workforce could be affected by the Malaysian exit controls.

While Singapore tightened controls on travellers from the rest of Asean, it excluded sea and land checkpoints with Malaysia from the rules.

But Malaysia has since moved to block its own citizens from leaving, in a late-night development on Monday that Mr Lee later said was "not surprising, as many other countries have already imposed similar lockdowns".

In China, where the Covid-19 outbreak began, an unprecedented shutdown pushed factory output for January and February down by 13.5 per cent year on year, and sent unemployment spiking to a record 6.2 per cent.

Though Mr Lee told Singaporeans last week that "we are not locking down our city like the Chinese or Italians have done", economists are shaving forecasts amid a global shake-up.

Maybank Kim Eng analysts recently forecast a full-year contraction of 0.3 per cent for this year, but senior economist Chua Hak Bin warned that the house "may have to take it lower if Malaysia's shutdown takes a heavier toll on Singapore's economy".

And, with the spread of Covid-19 to Europe and the United States expected to hit external demand, Brian Tan of Barclays Bank cut his growth outlook from a 0.4 per cent to 0.9 per cent decline - below the official forecast range of between 0.5 per cent contraction and 1.5 per cent growth.

To offer ammunition in a possible recession, the MAS is widely expected to ease monetary policy at its upcoming half-yearly meeting, slated for no later than April 14.

But, on top of taking the Singapore dollar's pace of appreciation to a neutral "zero slope", the MAS is now seen as more likely to also lower the mid-point of the policy band in which the currency is allowed to trade.

"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," Citi analysts Kit Wei Zheng and Ang Kai Wei remarked in a note following news of the Malaysian lockdown.

And, after aggressive, coordinated interest rate easing by other central banks, from the US Federal Reserve to the Bank of Japan, chatter is also growing as to whether the MAS could take action earlier than its April meeting.

"If we are staring at a recession risk, the MAS would likely do a two-in-one," said Mr Seah, who believes that there could be an off-schedule policy move. "Why wait, if this is the kind of scenario that we're looking at?"

Similarly, Prakash Sakpal, Asian economist at ING, wrote in a note that, after an emergency rate cut from the Fed on Sunday, "an easing ahead of the next scheduled policy review in April seems more likely than not".

On the other hand, there are analysts like Mr Tan who think the central bank will be able to hold off on a move until its meeting. Dr Chua told BT: "April is just around the corner and there is still room for the Singdollar exchange rate to depreciate within the band."

In any case, "in Singapore's instance, the government will rely on fiscal measures a lot more than on monetary policy", Mr Seah said.

Deputy Prime Minister Heng Swee Keat, who is also the Finance Minister, is expected to soon introduce a second stimulus package, roughly a month after delivering a S$4 billion shot in the arm in February's Budget.

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

Still, in his statement on Tuesday, Mr Lee said Mr Muhyiddin has assured him that goods and cargo flows between Singapore and Malaysia - including food supplies - will continue.

The Singapore 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", Foreign Minister Vivian Balakrishnan separately added.

Essential services such as healthcare, security, waste and facilities management and logistics are being prioritised for housing support, and Dwight Hutchins, chairman of the American Chamber of Commerce in Singapore, has called for workers in these sectors to be exempted from the movement control order.

But, even with Singapore already able to arrange housing for more than 10,000 affected workers - including 2,500 in the public transport sector - the operational details of maintaining cargo flows are still being worked out.

Clement Fong, chief marketing officer at medical device maker Fong's Engineering & Manufacturing, told BT that he is definitely concerned about the supply chain from Malaysia, although the company has enough inventory here to last "a few months".

To be sure, fears of a manpower crunch may be overblown. Labour economist Walter Theseira noted that a shortage of workers might balance out "the crash in demand" that the global Covid-19 outbreak has wrought on retail and food services.

"But I think there'd still be a lot of dislocation, which can't be good for the economy," said the associate professor at the Singapore University of Social Sciences. He warned that a longer disruption may prompt some factory owners to shift production across the Causeway for good.

Otherwise, if companies pare exposure to Malaysian workers, wages would have to go up - to either woo Singaporeans, or convince commuting Malaysians to live in Singapore.

– Additional reporting by Leila Lai, Lynette Tan and Janice Heng