Surprise MAS hold signals core inflation near peak; economists see longer pause in policy tightening

[SINGAPORE] Economists read the surprise decision by the Monetary Authority of Singapore (MAS) to hold monetary policy settings on Wednesday (Oct 14) as a sign that core inflation may be close to peaking, and most expect a longer pause in policy tightening.

MAS left the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band unchanged, with no change to its width or the level at which it is centred.

The decision went against the expectations of 17 of 20 economists in a Bloomberg poll, who had forecast a steepening of the policy band slope.

The central bank also narrowed its 2026 core inflation forecast to 1.5 to 2 per cent from 1.5 to 2.5 per cent, and expects headline inflation of around 2 per cent.

Core inflation rose to 2.1 per cent in July and August from 1.5 per cent in the second quarter. MAS said the figure should stay slightly elevated in the immediate quarters ahead, before “easing more discernibly from mid-2027”.

Maybank economists Chua Hak Bin and Brian Lee said the narrowed inflation forecast suggests that “core inflation is at or close to its peak”.

“MAS believes the current mildly restrictive setting is sufficient to manage a near-term imported-inflation hump, because domestic cost pressures – particularly services – remain subdued and inflation is expected to ease from mid-2027,” they said.

They expect MAS to hold in January and through the rest of 2027, as the October decision sets “a high bar for further policy tightening”.

OCBC chief economist Selena Ling said the October decision suggests that MAS is more confident that core inflation is stabilising, and “signalled comfort with the current S$NEER policy stance, of which the cumulative effects of the earlier April and July 2026 policy tightening are still working their way through the system”.

She added that the decision “should be seen as a policy pause since the earlier policy tightening delivered in April and July is viewed as sufficient”.

Ling expects MAS to hold at least until its January 2027 meeting, assuming the output gap narrows and core inflation eases from mid-2027 as the authority has projected.

OCBC’s 2026 headline and core inflation forecasts remain at 2 per cent and 1.8 per cent, respectively.

DBS senior economist Chua Han Teng also viewed the decision as a pause, coming after two “proactive” tightening moves this year.

While Q3 growth was robust, “a steady expansion in the coming quarters would still result in a narrower positive output gap, capping underlying inflationary pressures”, he added.

DBS trimmed its 2026 core and headline inflation forecasts to 1.8 per cent and 2 per cent from 2 per cent and 2.2 per cent, respectively; it also cut its 2027 forecasts to 1.8 per cent from 2 per cent, respectively.

JPMorgan Chase economist Siddharth Jamad said: “Given this assessment of growth-inflation risks and the quantum of tightening already delivered so far, we expect the MAS to stay on an extended hold in 2027.”

He estimated that MAS has delivered 75 basis points of tightening this year.

Risk of January move

Yet, not all expect a long pause. Yin Liu, senior Asean economist at HSBC, said that while MAS sounded less hawkish, the door to further tightening is not closed.

She noted that after five straight policy tightenings in April 2023, MAS described its policy path as “sufficiently tight” to signal the end of its cycle – a phrase that was missing from Wednesday’s statement.

She expects upside risks to inflation to intensify, citing elevated energy costs amid Middle East tensions, a 7 per cent public transport fare increase in December and high food costs due to El Nino.

HSBC had expected a 25-basis-point slope increase this week and now expects it in January 2027, which would bring the slope to 1.5 per cent.

UOB associate economist Jester Koh said the greater surprise was not the decision itself, but “the somewhat dovish tone” of the statement, given elevated imported inflation and no clear resolution to the Middle East conflict.

UOB now expects MAS to hold through 2027, but Koh put the odds of a further 25-basis-point slope increase in January at 30 per cent.

He cited the intensifying Middle East conflict, broadening imported price pressures and a possible rebound in electricity tariffs in Q1 2027.

Koh added that core inflation could peak at 2.5 per cent in January and average 2.1 to 2.2 per cent in 2027, potentially above MAS’ projections.

OCBC’s Ling said she could not fully discount upside surprises in energy, food, wages or broader artificial intelligence-related demand that could still necessitate renewed tightening. MAS itself said that risks to inflation remain tilted to the upside.

The Singapore dollar’s trade-weighted index edged lower after the decision. Maybank noted that the S$NEER was 1.67 per cent above the midpoint of the policy band, from 1.73 per cent before the announcement.