In a widely anticipated decision, Singapore’s central bank opted to maintain its current monetary policy settings for the fifth consecutive time. The Monetary Authority of Singapore (MAS) reaffirmed its forecast that inflation will ease to around 2% by 2025, signaling a potential shift towards easing policy in the coming year.
On Friday, the MAS announced it would retain the slope, width, and center of the Singapore dollar’s nominal effective exchange rate (S$NEER) band. This decision aims to sustain the local dollar’s appreciating trajectory, which helps mitigate the impact of imported inflation.
The central bank described the current monetary stance as “appropriate,” maintaining its pause after implementing five rounds of tightening between October 2021 and 2022. This announcement follows recent data indicating the slowest core inflation in over two years and stronger-than-expected economic growth. The MAS’s decision precedes forthcoming policy reviews by the US Federal Reserve and the Bank of Japan.
The stability of the Singapore dollar at 1.34 against the US dollar reflects the market’s response to the MAS’s statement. Khoon Goh, head of Asia research at Australia & New Zealand Banking Group, characterized the statement as balanced and suggested that no immediate policy changes are expected in October. Goh reiterated his view that significant policy easing is likely to be a 2025 development.
The MAS projected that core inflation will moderate more noticeably in the fourth quarter, provided there are no additional cost shocks. The central bank maintained its previous forecast, expecting price growth to decelerate to around 2% by 2025, following a current estimate of 2.5%-3.5% for this year.
Additionally, the MAS revised its headline inflation forecast to a range of 2%-3% for the current year, a decrease from the earlier 2.5%-3.5% range.
Since the MAS’s last policy update in April, Singapore’s economic recovery has strengthened, with core inflation easing below 3% in June after three consecutive months of stagnation. This moderation in price growth provides the central bank with the flexibility to maintain supportive monetary conditions amidst growing geopolitical uncertainties.
Selena Ling, chief economist at Oversea-Chinese Banking Corp Ltd., noted that the MAS’s balanced inflation risk outlook offers flexibility for future policy adjustments. Ling highlighted that the central bank’s monitoring of core inflation trends could potentially open the door for policy easing in October, though she remains cautious with a baseline expectation for 2025.
Brian Tan, senior regional economist for ASEAN at Barclays Plc, found the 2% core inflation forecast notable. He anticipates that policymakers will likely refrain from altering the S$NEER band parameters in the near term, given the current economic conditions.
