MAS eases Singdollar policy for first time since 2020 as it lowers key inflation forecast


MAS eased monetary policy as it lowered its forecast for core inflation in 2025 to 1 per cent to 2 per cent. - ST

SINGAPORE: Singapore’s central bank tweaked its monetary policy stance to favour a more gradual appreciation of the Singapore dollar, saying it now expects core inflation in 2025 to be lower than projected.

The Monetary Authority of Singapore (MAS) said on Jan 24 that it will reduce the prevailing rate of appreciation in the value of the Singapore dollar versus a basket of currencies of its major trading partners. MAS refers to this value as the Singdollar nominal effective exchange rate (S$Neer).

Announcing the first such move since March 2020, MAS said: “This measured adjustment is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability.

“MAS will closely monitor global and domestic economic developments, and remain vigilant to risks to inflation and growth.”

The Singapore dollar traded roughly unchanged at 1.3560 to the US dollar as at 8.54am after MAS’ anticipated move. It has weakened steadily in recent months due to US dollar strength as Federal Reserve interest rate cuts appeared less likely and Trump tariffs loomed.

With its easing move, MAS joins a growing host of policymakers and private economists worldwide who believe the anticipated hit to economic growth from US President Donald Trump’s more protectionist trade stance will outweigh the fuel to inflation from the higher tariffs that he is planning.

The Government has already lowered Singapore’s 2025 growth outlook, expecting the economy to expand at a slower pace of 1 per cent to 3 per cent, down from 4 per cent in 2024.

Eleven out of 17 economists surveyed by Bloomberg News had expected the MAS to reduce the slope (the rate of appreciation) of the policy band on Friday.

The last time MAS eased the pace of Singapore dollar’s appreciation in 2020 was when the economy was headed for its worst recession ever in the wake of the Covid-19 pandemic.

This time around the decision comes after inflation, which had soared to its highest levels in more than a decade in 2023, dropped to a three-year low in December 2024.

The decline in inflation came after MAS tightened the monetary policy in five successive moves between October 2021 and October 2022 and held on to it until now to favour a stronger Singapore dollar.

Inflation data released on Jan 23 showed core inflation - which strips out private transport and accommodation costs to better reflect household expenses - eased to 1.8 per cent year on year, a three-year low.

Although this was above the 1.7 per cent forecast by economists, it was still the lowest since November 2021 when core inflation was 1.6 per cent.

For 2024 as a whole, core inflation averaged 2.7 per cent, easing from 4.2 per cent in 2023.

Hence MAS cut its forecast for core inflation to 1 per cent to 2 per cent for 2025, from 1.5 per cent to 2.5 per cent.

Said MAS: “Business cost- and demand-driven inflationary pressures are expected to remain contained. Singapore’s imported costs should stay moderate reflecting forecasts of global oil price declines and favourable supply conditions in key food commodity markets.”

“At the same time, consumer price inflation for essential services such as public healthcare, pre-school education and public transport will be dampened by additional government subsidies,” it noted.

Overall – or headline – inflation came at 1.6 per cent year on year in December, unchanged from November. For 2024 as a whole, core inflation averaged 2.7 per cent, down from 4.2 per cent in 2023.

However, MAS kept its 2025 headline inflation forecast unchanged at an average of 1.5 per cent to 2.5 per cent, saying an anticipated pickup in private transport inflation will be partly offset by a slowdown in accommodation inflation.

Commenting on the outlook for economic growth, MAS said global economic policy uncertainty has risen since the last monetary policy review in October 2024, mainly reflecting expectations of increasing trade policy frictions.

“Singapore’s GDP (gross domestic product) growth is projected to moderate over 2025. The impact of shifts in global trade policies could weigh on the domestic manufacturing and trade-related services sectors,” it noted.

MAS said the prospect of persistently elevated inflation has contributed to a tightening of global financial conditions. Meanwhile, manufacturing and trade activity is anticipated to ease.

“All in, global growth could slow over 2025,” it said.

MAS uses the currency rate as its main monetary policy tool to contain imported inflation.

As Singapore trades with many different countries, goods and services bought and sold are priced in a variety of currencies. Therefore, how the Singapore dollar performs in relation to the various currencies collectively is what matters for general price levels in Singapore, and in turn, inflation.

Hence, the Singapore dollar is managed against a basket of currencies of its major trade partners. The weight assigned to each currency reflects the importance of that economy to Singapore’s trade.

This basket of bilateral exchange rates is combined into an index, which is known as the Singapore dollar nominal effective exchange rate (S$Neer). It is also known as the trade-weighted exchange rate.

The S$Neer is allowed to move up and down within an undisclosed policy band set by the MAS. The S$NEER can therefore appreciate or depreciate within the band in the short term when conditions in financial markets change or when shocks hit the Singapore economy.

At three-month intervals, monetary policy is set by determining three different parameters of the policy band - the slope (rate of appreciation), the mid-point of the band and the width of the band.

By adjusting any of these three levers, MAS can guide the S$Neer on a path that will help bring about low and stable inflation in the economy. - The Straits Times/ANN

Follow us on our official WhatsApp channel for breaking news alerts and key updates!
Singapore , MAS , inflation , monetary , policy , dollar

Next In Aseanplus News

Asean news headlines as of 10pm on Tuesday (Feb 11)
Mother found dead with baby at HDB block likely had undiagnosed postpartum depression: Coroner
Turkish President Erdogan arrives in Indonesia for official visit
Vietnam boasts opportunities to become global cruise hub
South Korea election official rejects impeached president's fraud claims
Woman in China injured after mistaking firecracker for candy
Warehouse fire in George Town nearly destroys building
Four killed, three missing as speedboat capsizes in North Kalimantan
Key Bangladesh party warns over unrest after buildings smashed
Strong winds, snow cause flight cancellations in Japan's Hokkaido

Others Also Read