Singapore’s economy is likely to face persistent pain from global financial concerns, even though the country’s core inflation eased somewhat in October.

The Monetary Authority of Singapore warned of prolonged risk factors piling onto the nation’s financial vulnerability in the corporate, housing and banking sectors — citing weakening demand and persistent inflationary pressures.

“Amid weakening external demand, the Singapore economy is projected to slow to a below-trend pace in 2023,” the central bank said in its latest Financial Stability Review report. “Inflation is expected to remain elevated, underpinned by a strong labour market and continued pass-through from high imported inflation.”

Warning of contagion risk from global markets, the central bank said the nation’s corporate, household, and financial sectors should “stay vigilant” amid the macroeconomic challenges that lie ahead.

“The most immediate risk is a potential dysfunction in core international funding markets and cascading liquidity strains on non-bank financial institutions that could quickly spill over to banks and corporates,” it said.

The report comes days after the nation reported some easing in inflation prints for October. While still at 14-year highs, Singapore’s core consumer price index rose 5.1% for the month compared with a year ago, slightly lower than 5.3% in September.

Singapore does not have an explicit inflation target, but MAS sees a core inflation rate of 2% as generally reflective of “overall price stability.” The country’s October core CPI is also significantly above that level as well as the central bank’s forecast for “around 4%” inflation for 2022.

JPMorgan analysts said while they expect core inflation levels to remain elevated until the first quarter of next year, they predict the readings that follow will show more easing. That would leave room for the central bank to step away from a hawkish stance.

“If this forecast materializes, this would suggest little need for the MAS to tighten its NEER policy next year,” the firm said in a note.

Minutes from the latest Federal Reserve meeting released this week said that smaller interest rate hikes should happen “soon” — an indication that its global peers, including the MAS, could also take a breather from their own tightening cycles.

“MAS is in a similar position too — it has tightened monetary policy a lot in 2022 and will want to see how the impact plays out,” said BofA Securities ASEAN economist Mohamed Faiz Nagutha.

“This means further tightening is not a given, but also cannot be ruled out at this juncture,” he said.

Nagutha emphasized, however, that elevated inflation will continue to broaden for a while.

“MAS will not be declaring it a success anytime soon in our view,” he said.

IG market strategist Jun Rong Yeap said that also applies to MAS’ peers in Asia-Pacific.

Though global central banks like the Reserve Bank of Australia and the Bank of Korea have taken smaller steps in interest rate hikes, inflation will remain a key focus, he said.

“Persistence in pricing pressures could still a drive a recalibration of how high or how much longer interest rates will have to be in restrictive territory,” he said. “And that will come with a greater trade-off for growth.”