Singapore’s central bank is expected to keep its monetary policy unchanged during the upcoming review on July 26, 2024, due to persistent inflation risks stemming from geopolitical tensions. A recent poll of ten analysts conducted by Reuters revealed that nine anticipate no adjustments by the Monetary Authority of Singapore (MAS).

Lloyd Chan, a senior currency analyst at MUFG global market research, noted that the MAS is likely to adopt a cautious approach given that core inflation remains above its target of 2%. He projected that core inflation may only return to this target level by early 2025. Concerns about rising global freight costs and geopolitical uncertainties could further complicate the inflation landscape.

Although inflation in Singapore has decreased from a peak of 5.5% in early 2023, it was still recorded at 3.1% year-on-year from April to May and fell to 2.9% in June. MAS managing director Chia Der Jiun indicated that core inflation is expected to continue its disinflation trend, significantly easing in the fourth quarter and potentially reaching around 2% by 2025, barring any additional shocks.

Chia also anticipated Singapore’s economic growth for the full year to align more closely with its potential rate of 2% to 3%, which falls within the trade ministry’s forecast range of 1% to 3%. In contrast, while central banks worldwide are beginning to implement rate cuts, Singapore’s monetary policy operates differently. The MAS manages the local dollar’s value against currencies of its major trading partners through the Singapore dollar nominal effective exchange rate (S$NEER), adjusting policy via the slope, mid-point, and width of the exchange rate band.

The only analyst predicting a potential easing of monetary policy was DBS, suggesting that the MAS might slightly adjust the appreciation pace of the currency band in the latter half of the year. Conversely, Barclays indicated a greater likelihood of a tightening through an increase in the slope of the band, although overall expectations for any adjustments remained low.

Singapore is often viewed as a barometer for global economic health, given that its international trade is significantly larger than its domestic economy. After experiencing a slowdown in growth to 1.1% in 2023 from 3.8% in 2022, preliminary GDP data revealed a 2.9% year-on-year increase in the second quarter of 2024, prompting economists to revise their growth forecasts upwards.

Chia highlighted the necessity of prior monetary tightening, stating that without these measures, core inflation could have reached as high as 7%, with headline inflation hitting 8%. MAS has not altered its policy since implementing a tightening in October 2022, which marked the fifth consecutive adjustment amid overarching growth concerns. The MAS has also transitioned to quarterly policy announcements, shifting from a semi-annual schedule.