MAS keeps monetary policy on hold after tightening twice this year
The Monetary Authority of Singapore also narrowed the core inflation forecast to 1.5 to 2 per cent, from a previous prediction of 1.5 to 2.5 per cent.
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SINGAPORE: The Monetary Authority of Singapore (MAS) kept monetary policy unchanged on Wednesday (Oct 14), contrary to analysts' expectations. It also narrowed the core inflation forecast to 1.5 to 2 per cent, from a previous prediction of 1.5 to 2.5 per cent.
The central bank said the Singapore economy should continue to expand at a firm pace in the immediate quarters ahead before moderating as the artificial intelligence boom eases from its exceptional pace.
Core inflation is projected to ease discernibly from the middle of next year, MAS added.
"MAS will therefore maintain the rate of appreciation of the policy band. There will be no change to the width of the band and the level at which it is centred," the central bank said.
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The current appreciating policy band will allow the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) to strengthen and lean against the anticipated near-term rise in imported inflation, ensuring the gradual easing of inflationary pressures in 2027, said MAS.
It added that it is well positioned to respond effectively to risks to medium-term price stability and will continue to monitor economic developments closely.
All 10 analysts polled by Reuters ahead of Wednesday expected MAS to tighten policy, meaning the Singapore dollar would be allowed to strengthen more, helping to reduce imported inflation.
Unlike other central banks, which usually rely on interest rates, Singapore's monetary policy is managed through the exchange rate. The MAS lets the Singapore dollar strengthen or weaken against the currencies of the country's main trading partners within an undisclosed band.
The band's slope, mid-point and width can be changed to make adjustments to policy.
The central bank increased the rate of appreciation of the policy band in April and July, with the second increase being smaller than the first. The width of the policy band and the level at which it is centred were left unchanged both times.
Since July, the S$NEER has strengthened modestly in the upper half of the appreciating policy band, said MAS.
INFLATION TO MODERATE OVER 2027
Inflation rose in the first two months of the third quarter, with core inflation rising to 2.2 per cent in August, the highest figure since September 2024.
Looking ahead to 2027, however, MAS said supply-driven imported inflation is projected to slow and domestic costs are expected to stay muted.
"Inflation is expected to moderate over 2027 as import costs ebb and domestic price pressures stay subdued," the central bank said.
Supply disruptions to energy and food commodities should gradually ease, while unit labour cost increases in the services sectors should be contained due to productivity gains.
Enhancements to government subsidies for healthcare and education will also keep services inflation low over 2027, said MAS.
It said core inflation, which excludes accommodation and private transport, should remain slightly elevated in the immediate quarters before easing.
Higher import costs passed through to a broader range of goods and services, including electricity and gas tariffs, transportation services and food prices. Services inflation was tamped down by enhanced government subsidies for healthcare and intense competition among telecommunications services.
For the full year, core inflation is expected to average 1.5 to 2 per cent, while overall inflation should come in around 2 per cent. In 2027, MAS expects both core inflation and overall inflation to come in between 1.5 to 2.5 per cent.
"For now, the risks to inflation remain tilted to the upside," said MAS, noting that a sharp and sustained surge in global energy or food prices could lift Singapore's import costs.
Domestic inflation could also stay elevated if spillovers from the AI-related boom broaden and unit labour costs rise more rapidly.
On the other hand, a higher-than-expected increase in interest rates or sharper pullback in AI investment could cause a drag on growth and inflation.
If energy production and shipments from the Middle East recover more quickly than expected, energy prices would also decline more quickly, said MAS.
SINGAPORE ECONOMY TO CONTINUE EXPANSION
In terms of economic activity, MAS said Singapore is expected to continue expanding steadily in the quarters ahead, with strong orders for AI products and an increase in production capacity supporting firm growth in the technology-related sectors.
The Ministry of Energy, Trade and Industry (METI) on Wednesday said Singapore's gross domestic product grew 5.4 per cent in the third quarter of the year, led by robust expansions in the tech-related sectors.
Construction, financial services and real estate also saw firm activity, while consuming-facing segments reported some weakness.
AI-related activity is projected to moderate in the latter half of 2027, while the construction of major infrastructure projects and financial services activity is expected to continue.
Singapore's major trading partners have also seen robust economic activity as AI-related investments sustain strong industrial production and trade in the region and in the world.
The impact of higher energy costs on demand has been contained by the drawdown of existing inventories and supportive fiscal measures.
Global growth is expected to be resilient in the near-term before gradually moderating as AI-related growth eases from its current exceptional pace.
Higher interest rates and elevated inflation in advanced economies would also weigh on final demand growth, said MAS.
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