Singapore's central bank unexpectedly left its monetary policy unchanged, as it expects global energy tightness and the demand surge driven by artificial intelligence to cool next year.
The Monetary Authority of Singapore uses the exchange rate, rather than interest rates, as its primary policy tool. In a statement released on Wednesday, the authority kept the slope, width and midpoint of its exchange rate policy band unchanged. This marks the first pause in tightening after several consecutive rounds of tightening at its April and July meetings.
Of the 20 economists surveyed by the media, only 3 anticipated this decision. Most had expected the MAS to raise the slope of the policy band, and most respondents also expected the central bank to retain a hawkish bias. After the larger-than-expected decision was announced, the Singapore dollar fell 0.1% to 1.28 per US dollar.
Khoon Goh, head of Asia research at ANZ, said: "The effects of the two consecutive rounds of tightening in April and July are still being transmitted, so the central bank believes there is no need for further tightening at this stage. But this does not mean the tightening cycle is over. If upside inflation risks materialize next year, the MAS may tighten policy again."
The MAS narrowed its core inflation forecast range for this year to 1.5%-2%, compared with the upper limit forecast of 2.5% at its July meeting; headline inflation is expected at about 2%. As import costs decline and disruptions to energy and food supplies ease, both inflation measures are expected to average 1.5%-2.5% next year. With the help of government subsidies in healthcare and education, domestic price pressures will remain moderate.
The MAS said core inflation will remain "slightly elevated" over the next few quarters, and is expected to "decline markedly" from mid-2027. In July, the MAS had expected inflation to "slow markedly" next year.
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