Core inflation in Singapore likely reduced to its slowest pace in three years last month, fuelling predictions the central bank will loosen policy later in the year.

According to a Reuters poll of 11 economists, they forecast core inflation of 1.0% in July compared to the year before, from 1.2% in June.

This would indicate the smallest rate of increase since September 2016.

The Monetary Authority of Singapore’s preferred price indicator for setting monetary policy is core inflation. It does not include changes to the prices of private road transport and accommodation, which are swayed more by government policies.

In July, Singapore’s headline consumer price index potentially increased 0.55%, according to the average of 12 forecasts, in comparison to 0.6% from the previous month.

The Reuters report goes on to say that Singapore has posted a series of subdued economic data. The country reduced its full-year economic growth forecast last week as global conditions appeared to be deteriorating and data revealed the slowest rate of growth in 10 years, amid increasing fears of a recession.

"The risk of a monetary easing has definitely risen," said Mr Edward Lee, an economist at Standard Chartered.

"But this is not unexpected. We do expect a bottoming during this time."

According to Lee Ju Ye, an economist with Maybank Kim Eng: “We think that in October they are going to ease to a neutral bias or zero appreciation of the Sing NEER (Singapore Dollar Nominal Effective Exchange Rate) given the slowing core inflation as well as the GDP growth number.”

Last month, Barclays economist Brian Tan forecast core inflation to average 1.1% per cent for 2019 and for the policy band slope to decline by 50 bp: "The risks have shifted, in our view, towards the MAS (Monetary Authority of Singapore) easing even more aggressively than this. Potentially, the MAS could reverse all of its FX policy tightening from last year and reduce the slope to 0%, especially if the Q3 GDP reading implies a technical recession, which is not our base case but cannot be ruled out."

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