MAS could tighten again in 2027 if inflation risks become real, says ANZ

ANZ's perspective moderates any dovish interpretation of the unexpected decision on Wednesday. Should markets perceive the hold as a pause in a tightening cycle, any depreciation of the Singapore dollar against its trade partners may be limited. The threshold for additional action is now evidence that inflation risks are becoming real, placing imported energy costs at the heart of the outlook. A fresh spike in oil or refined product prices linked to Gulf conflict would be the most probable catalyst for MAS to raise the slope of its policy band once more. A decline in crude prices would bolster the argument for a prolonged pause.

ANZ views the MAS decision as a pause, not a shift in direction: previous tightenings require time to take effect, but further action is still possible.

Key points from ANZ's analysis:

• ANZ, among the handful of analysts that anticipated the MAS would hold policy on Wednesday, indicated that the central bank might tighten again should inflation risks materialise next year.
• Khoon Goh, head of Asia research at ANZ, stated that the impact of MAS's two tightening moves in April and July is still working through the economy, so the central bank sees no immediate need for additional action.
• Goh pointed out that Q3 GDP growth exceeded expectations and that MAS projects core inflation will remain somewhat elevated in the near term.
• Goh stated that the decision to hold does not indicate the end of the tightening cycle.

According to ANZ, which was one of the few forecasters to correctly predict Wednesday's decision, the Monetary Authority of Singapore may resume tightening next year if upside inflation risks materialise.

Khoon Goh, ANZ's head of Asia research, explained that the MAS determined there was no need for additional tightening at this point since the impact of its two prior moves in April and July is still being transmitted through the economy. Monetary policy operates with a lag, and adjustments to the Singapore dollar's trajectory require time to affect import prices and ultimately consumer inflation.

This came despite a stronger-than-expected economic environment. Goh observed that Q3 GDP growth exceeded forecasts and that the MAS continues to expect core inflation to stay moderately high in the near term. He emphasised, however, that the decision does not mark the end of the tightening cycle, and that the MAS could tighten again if upside inflation risks appear next year.

ANZ's forecast distinguished it from the consensus. All 10 economists surveyed by Reuters prior to the decision had anticipated a tightening, making Wednesday's hold a surprise for most of the market.

The MAS, which conducts policy via the Singapore dollar's trade-weighted exchange rate, left the rate of appreciation, width, and centre of its policy band unchanged. Since the band remains on an appreciating path, the decision maintains the existing tightening stance without adding to it.

In its policy statement, the central bank stated that the economy is expected to grow at a robust pace in the next few quarters before slowing as the AI cycle decelerates and global financial conditions tighten. It projected core inflation to average between 1.5% and 2.0% in 2026 and to decline more noticeably from mid-2027, but noted that inflation risks are still skewed to the upside, including from a sharp and persistent increase in energy or food costs.

ANZ's analysis indicates that any future move is more likely to be a tightening than an easing. The trajectory of imported costs, especially energy, and whether core inflation turns out to be more persistent than the MAS anticipates will influence the outlook for its future reviews.