Singapore Dollar: MAS surprise hold signals extended pause – MUFG
MUFG’s Michael Wan reports that the Monetary Authority of Singapore surprised markets by holding its exchange rate policy unchanged in October, against expectations for slight tightening. MAS sees core inflation easing from mid-2027, subdued domestic costs and a narrowing output gap as the AI cycle cools. Forward guidance suggests the Singapore Dollar policy band will keep appreciating to counter…
Singapore's Monetary Authority of Singapore (MAS) surprised markets by holding its exchange rate policy unchanged in October, contrary to expectations of a slight tightening. MAS anticipates core inflation to ease from mid-2027, driven by subdued domestic costs and a narrowing output gap as the AI cycle slows. The central bank's forward guidance suggests the policy band will continue to appreciate, countering imported inflation.
The unexpected hold by MAS in October's policy meeting surprised markets, as they had been expecting a minor tightening. MAS stated that core inflation is expected to ease noticeably from mid-2027, with domestic costs remaining subdued and aided by a projected slowdown in imported inflation. Additionally, MAS expects the positive output gap to narrow through next year due to a cooling AI cycle.
Notably, MAS highlighted contained unit labor cost increases in the services sector, attributed to ongoing productivity gains, as a key factor alleviating inflation concerns. The central bank's "forward guidance" implies it may remain on hold for now, barring any changes, with the current appreciating policy band aiding the SGD to strengthen against the US dollar and counter anticipated near-term imported inflation.
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