To The Moon

Strategic Reserve of Core Monetary Policy

Singapore unexpectedly tightened its monetary policy for the second consecutive time on Monday, a move designed to preempt risks from another surge in oil prices, even as domestic inflation remains low.

The Monetary Authority of Singapore (MAS) stated it would "very slightly" increase the appreciation rate of the Singapore dollar's nominal effective exchange rate policy band, a smaller adjustment than the one made in April. The width and center of the policy band remain unchanged.

Economists surveyed by Reuters last week had predicted the MAS would hold its policy steady.

Unlike most central banks, the MAS manages monetary policy by steering the Singapore dollar against an undisclosed basket of trade-weighted currencies within an unspecified band, rather than setting interest rates.

"In a persistently highly uncertain environment, this calibrated policy adjustment is a continuation of the tightening measures from April," the MAS said in a statement.

Selina Ling, Chief Economist and Head of Group Research at OCBC Bank, commented, "The majority were calling for the MAS to hold policy, so this move was not a consensus expectation." She added that back-to-back tightening implies the MAS is not taking imported inflation lightly.

Singapore's core inflation, which excludes accommodation and transport costs, edged up to 1.6% in June from 1.4% in May, near the bottom of the MAS's 1.5%–2.5% forecast range for this year, while headline inflation stood at 1.9%.

According to analysis from BMI, a Fitch Solutions company, while transport fuel prices have risen rapidly since the US-Iran conflict erupted, slowing services inflation—particularly in healthcare, communications, and education—has largely offset the price pressures.

"Import cost pressures typically feed into overall consumer prices with a lag, so we still expect inflation to rise in the coming months," the intelligence firm stated.

OCBC forecasts that headline and core inflation will overshoot to around 2.5% and 2.3%, respectively, in the coming months, adding that inflation may not fall below 2% until the second half of 2027.

Singapore relies almost entirely on imported energy, making it highly vulnerable to oil price increases.

Last week, Brent crude oil climbed back above $100 per barrel after Houthi militants attacked two Saudi oil tankers in the Red Sea, exacerbating supply threats that had previously eased due to a ceasefire breakdown in the Middle East.

So far, Singapore's economy has been shielded from the turbulence by growth in electronic exports driven by AI demand.

Singapore's second-quarter GDP grew 5.7% year-on-year, surpassing the 5.5% median estimate in a Reuters poll and significantly exceeding the government's full-year forecast of 2%–4%.