MAS holds policy settings, pausing after two straight tightenings

[SINGAPORE] The Monetary Authority of Singapore (MAS) kept monetary policy settings unchanged on Wednesday (Oct 14), pausing after two consecutive tightenings this year.

The central bank maintained the rate of appreciation 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.

The decision surprised most economists, with 17 of 20 in a Bloomberg poll having forecast a steeper slope. Three predicted no change.

MAS said the economy should continue to expand at a firm pace in the near term, before moderating as the artificial intelligence (AI) cycle eases from its exceptional pace and global financial conditions tighten.

Core inflation is projected to ease discernibly from the middle of next year as supply-driven imported inflation slows and domestic costs stay subdued.

The current policy band will allow the S$NEER to keep strengthening and lean against an expected near-term rise in imported inflation, MAS said. It added that it is well-positioned to respond to any risk to medium-term price stability.

MAS core inflation rose to 2.1 per cent in July and August from 1.5 per cent in the second quarter, as higher import costs passed through to a broader range of goods and services.

MAS now expects core inflation to average 1.5 to 2 per cent in 2026, narrowed from 1.5 to 2.5 per cent, with headline Items inflation at around 2.0 per cent.

For 2027, both core and headline inflation are projected to average 1.5 to 2.5 per cent. MAS said risks to inflation remain tilted to the upside.

MAS raised the slope in April, its first tightening since 2022, as higher energy prices from the Middle East conflict fed through to imported costs.

The central bank tightened again in July, but by a smaller margin. Analysts estimate the slope was lifted to 1.25 per cent at that meeting, which remains the estimated level.