Singapore Central Bank Eases Monetary Policy Amid Subdued Inflation Outlook

Key Points:

* Monetary Authority of Singapore (MAS) adjusts exchange rate band policy to "reduce slightly" slope.
* Core inflation forecast revised down to 1%-2% for 2025, reflecting moderated price pressures.
* Central bank confident in disinflationary path despite trade war concerns.
* Singapore dollar weakens slightly against US dollar following policy announcement.

MAS Eases Monetary Settings

The Monetary Authority of Singapore (MAS) has loosened its monetary policy settings for the first time since 2020, amidst expectations of็ผ“ๅ’Œ็š„ price pressures and slower economic growth. The move comes after a series of tightening measures implemented from 2021 to 2023.

Revised Inflation Outlook

The MAS has revised its core inflation forecast downwards to 1%-2% for 2025, from a previous estimate of 1.5%-2.5%. This adjustment reflects the moderation of price increases, which have remained below 2% in recent months. The central bank attributes this to the decrease in imported costs and stable local prices, including labor.

Trade War Impact Mitigated

The MAS acknowledges concerns regarding the potential inflationary impact of a trade war but remains confident that weaker global demand will offset any increase in import prices. Singapore's economy is expected to expand at a slower pace of 1%-3% in 2025, compared to 4% growth in 2024.

Central Bank's Cautious Approach

Central bankers are closely monitoring the proposed US tariffs but will assess their impact once implemented. Singapore authorities are adopting a cautious approach and will continue to monitor risks and economic indicators, which have remained resilient so far.

Exchange Rate Adjustment

The MAS has adjusted the slope of its exchange rate policy band, which influences the pace of the Singapore dollar's appreciation or depreciation. However, the width and center of the band remain unchanged. The central bank does not disclose details of the band or its specific impact.

Next Steps

The MAS did not indicate a risk balance or signal an intention to adjust policy further at its next meeting, highlighting the heightened external uncertainty. However, economists believe that the central bank may consider additional easing if global demand falls rapidly due to trade frictions.