Singapore pivots to monetary easing as it flags growth risks

Singapore’s central bank has loosened its monetary policy settings for the first time in nearly five years. (Photographer: Edwin Koo/Bloomberg)
Singapore’s central bank has loosened its monetary policy settings for the first time in nearly five years. (Photographer: Edwin Koo/Bloomberg)

By Swati Pandey

(Bloomberg) – Singapore’s central bank loosened its monetary policy settings for the first time in nearly five years on expectations price pressures will keep abating and growth momentum will slow.

The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than interest rates, will “reduce slightly” the slope of its policy band, according to a statement Friday. There was no change to the width of the band or the level at which it is centred.

The MAS revised its forecast lower for core inflation – its closely watched price data – to average 1%-2% this year from a previous estimate of 1.5%-2.5%. The core gauge “has moderated more quickly than expected and will remain below 2% this year, reflecting the return to low and stable underlying price pressures,” it said.

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The central bank sees imported costs and local prices including labour staying moderate while it signalled that it isn’t too worried about the inflation impact of a trade war. Economists pointed out that the MAS is no longer explicitly flagging the “two-way” risks on inflation, exuding greater confidence on the path of disinflation.

“While an escalation of trade frictions could be inflationary for some economies, their impact on Singapore’s import prices is likely to be offset” by weaker global demand, the MAS said.

Singapore’s decision comes in a week when President Donald Trump was inaugurated for a second term, vowing to prioritise American interests and promising a “golden age” for the superpower. Trump has threatened sweeping tariffs on both allies and adversaries, casting the imposts as a source of revenue and a way to force companies to bring manufacturing jobs back to the US.

The city-state’s economy is forecast to expand at a slower pace of 1%-3% from last year’s 4% growth.

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Following the policy decision, which came in-line with expectations, the Singapore dollar weakened as much as 0.2% against the dollar to 1.3518. It reversed and was up 0.2% after Donald Trump dialed back his tariff threats.

The Singapore dollar is back to taking its cues from the dollar’s movement and global developments including the risk of US tariffs, according to Christopher Wong, a Singapore-based currency strategist at Oversea-Chinese Banking Corp.

Core Inflation

“There is greater comfort that core inflation is headed in the right direction, so the statement is slightly dovish but not overtly so,” said Selena Ling, chief economist at OCBC. “The window for further easing is there but no sense of urgency so it is not a shoe-in for April at this juncture.”

The central bank had tightened five times since October 2021 before a lengthy pause that began in 2023. Singapore, which imports the lion’s share of basic goods, has seen core inflation cool to below 2% in the last two months of 2024. The last time the MAS loosened settings was during the pandemic in March 2020.

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The MAS allows the currency to move within a band, adjusting the slope, center or width as needed to alter the pace of appreciation or depreciation. The central bank doesn’t disclose details of the basket, the band nor the pace of appreciation or depreciation – just whether they’ve changed.

Central bankers are taking a watchful approach to the proposed US tariffs, waiting to see what’s actually implemented before assessing the impact. Trump signalled plans to impose previously threatened tariffs of as much as 25% on Mexico and Canada by Feb. 1, and said he’s considering 10% on Chinese imports.

In Singapore, authorities have been similarly cautious as they monitor risks and keep a close eye on the economy and labour-market indicators, which so far have remained resilient.

What Bloomberg Economics Says...

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The central bank didn’t indicate a risk balance or hint at an intention to adjust policy again at its next meeting – likely a reflection of the heightened external uncertainty. If global demand starts to fall off rapidly from the trade frictions, we think the MAS will loosen its settings more this year.

–Tamara Mast Henderson, Asean economist

The MAS review comes on the same day as the Bank of Japan is expected to push up borrowing costs further. Next week, the Federal Reserve will hold its first policy meeting of the year with questions remaining over the future pace of easing.

(Adds analyst’s comment on the Singapore dollar in ninth paragraph.)

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