SINGAPORE’S central bank eased monetary policy settings on Friday (Jan 24), after having held them steady for more than two years since the last tightening move in October 2022.
The Monetary Authority of Singapore (MAS) said it will “slightly” reduce the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to the width of the band or the level at which it is centred.
“This measured adjustment is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability,” MAS said.
The move was in line with market expectations, after Singapore’s core inflation – which excludes accommodation and private transport – came in below the 2 per cent threshold in December for the second straight month.
The central bank lowered its core inflation outlook for 2025, expecting it to average 1 to 2 per cent. This was down from its earlier forecast of 1.5 to 2.5 per cent made at its October meeting.
“Core inflation has moderated more quickly than expected and will remain below 2 per cent this year, reflecting the return to low and stable underlying price pressures in the economy,” said MAS on Friday.
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But it maintained its headline inflation forecast for 2025 at 1.5 to 2.5 per cent, saying: “Accommodation inflation is forecast to slow, partly offsetting an anticipated pickup in private transport inflation.”
OCBC chief economist Selena Ling said MAS’ statement appears “slightly dovish in the sense of growing comfort with the core inflation trajectory”. Yet, it is not “overtly so”, to the extent that it is signalling a “back-to-back easing”.
She added, however, that there may be another monetary policy calibration this year, “should growth and inflation dynamics continue to materialise as anticipated”.
Sheana Yue, economist at Oxford Economics, believes that a “marked fall in global demand” could bring the next loosening as early as the next meeting in April.
Slower growth
MAS expects Singapore’s growth momentum to slow over this year, after “outperforming” in the second half of 2024.
The official outlook for this year’s gross domestic product is 1 to 3 per cent, lower than the 4 per cent growth estimated for the full year in 2024.
“The level of output is projected to come in close to the economy’s potential for 2025 as a whole,” MAS added.
Singapore’s 2024 full-year core inflation averaged 2.7 per cent, falling within the official forecast range of 2.5 to 3 per cent, data from the Singapore Department of Statistics showed on Thursday. Full-year headline inflation came in at 2.4 per cent.
This was as December’s core inflation dipped to 1.8 per cent from 1.9 per cent the month before, in the lowest reading since November 2021. Headline inflation in December was unchanged at 1.6 per cent.
Several economists had expected MAS to slightly reduce the slope of the S$NEER policy band following December’s data, given the authorities’ relatively “dovish” take.
Accordingly, market reaction to MAS’ move had been fairly muted, as “expectations were already in the price”, noted OCBC’s Ling.
The US dollar to Singapore dollar pair remained fairly stable, at above 1.35, following the announcement.
“Expectations for MAS to ease can imply that the Singdollar strength on trade-weighted terms seen in the past two to three years will continue to ease,” she said.
However, as long as the policy band does not revert to a neutral slope, the Singdollar could still retain “some degree of relative resilience selectively against trade partners”, she added.
