MAS holds policy settings, pausing after two straight tightenings

Singapore's Monetary Authority (MAS) maintained monetary policy settings on Wednesday, October 14, after two consecutive tightening measures this year. The central bank kept the nominal effective exchange rate (NEER) policy band unchanged, with no adjustments to its width or level. This decision surprised most economists, as 17 out of 20 in a Bloomberg poll had predicted a steeper slope, with only three anticipating no change.

MAS anticipates the economy to continue expanding robustly in the near term before moderating as the AI cycle eases from its exceptional pace and global financial conditions tighten. Core inflation is expected to ease noticeably from mid-2027 as supply-driven imported inflation subsides, and domestic costs remain subdued. The current policy band will enable the S$NEER to continue strengthening, countering the anticipated near-term rise in imported inflation, according to MAS.

The central bank is well-positioned to respond to any risks to medium-term price stability. July and August saw core inflation rise to 2.1% from 1.5% in the second quarter due to higher import costs impacting various goods and services. MAS now projects core inflation to average 1.5 to 2% in 2026, a narrowing from the 1.5 to 2.5% range. Both core and headline inflation are expected to average 1.5 to 2.5% in 2027.

Risks to inflation remain tilted to the upside for MAS. In April, the central bank raised the slope of the NEER policy band for the first time since 2022, as higher energy prices from the Middle East conflict trickled down to imported costs. MAS tightened again in July, but by a smaller margin. Analysts estimate the slope was increased to 1.25% during that meeting, which remains the estimated level at the time of this decision.