Singapore's Central Bank Faces Policy Dilemma Amid Uncertain Global Landscape

Singapore, Reuters - Economists are divided on the Monetary Authority of Singapore's (MAS) upcoming monetary policy review, with some predicting a loosening and others expecting no change.

A Reuters poll surveyed 12 analysts, revealing a 50-50 split in expectations. Six analysts anticipate an easing of the currency-based monetary policy on Friday, citing lower inflation and stronger-than-anticipated economic growth in 2024.

However, the remaining six analysts project an unchanged policy stance, as the MAS has maintained its settings since a tightening in October 2022.

"MAS may prefer to evaluate the potential implications of policies introduced by the Trump administration in the second term," remarked Jonathan Koh, Asia economist at Standard Chartered Bank.

Lee Yen Nee of BMI, a risk analyst with Fitch Solutions, suggests that Singapore's economic resilience provides the MAS with room to wait and assess global developments comprehensively.

Internationally, central banks are leaning towards gradual and cautious monetary policy cuts. The Federal Reserve reduced rates in December but is expected to pause this month due to inflation concerns stemming from Trump's policies. The European Central Bank has also indicated potential reductions, albeit with caution due to uncertainties.

Unlike traditional interest rate policies, MAS manages monetary policy by adjusting the Singapore dollar nominal effective exchange rate (S$NEER) against the currencies of key trading partners within an undisclosed trading band.

Maybank economist Chua Hak Bin believes the central bank has room to ease policy given the favorable inflation outlook and forecasts a milder appreciation in the S$NEER band's slope.

Bank of America analysts predict no immediate policy change from MAS but anticipate a dovish signal before easing at the next scheduled review in April.

Singapore's economy is often regarded as a bellwether for global growth due to its significant international trade. Despite slowing to 1.1% in 2023 from 3.8% in 2022, growth unexpectedly rebounded to 4% in 2024. The trade ministry forecasts GDP growth for 2025 to be within a range of 1.0% to 3.0%.