Thursday, January 16, 2014

Singapore Car Ownership Levies To Rise

Car-ownership premiums for most vehicles in Singapore are set to rise and so will inflation. Singapore's Land Transport Au¬thority has announced some minor tweaking in the allocation period of the certificate of entitlement (COE) to a three-month system,
from six-months previously to address a sharp fall in supply of COEs that will be issued in the coming months. Even with this revision in policy, the average monthly COE quota will still fall by about 12.3% be¬tween February to April, compared with the August to January this year. This makes for further increase in premiums, which are currently hanging around the SG$70,000 to SG$8,000 range (excluding motorcycles).

We reckon premiums will continue to hover at this level as policymakers are determined to reduce the traffic congestion problem and to encourage commuters to switch to public transport. The Monetary Authority of Singapore introduced some drastic tightening in car loans early last year to cool demand for private vehicles, which caused a sharp correc¬tion in premiums between April to August. However, they rose again by September.

The policy direction has been set and is unlikely to change in the near-term unless demand for cars moderates. Otherwise, the pass-through effect on inflation will imply significantly higher inflation in the coming months. Our assessment is that infla¬tion will rise again from April onwards when the base effect from the earlier tightening wears off. We maintain our view that inflation will zoom pass the 3%-mark and approach the 4%-level by April. Full year inflation will average 3.0% compared to 2.4% in 2013.