Singapore's MAS surprises with steady policy, analysts had predicted tightening

Markets had expected tightening, so the dovish surprise leaves the Singapore dollar exposed to some weakening against trading partners as long positions built for a hawkish move unwind. Even so, the policy band retains an appreciating slope, making this a pause in tightening rather than an easing. Energy prices remain the key variable. MAS specifically cited a sharp and sustained rise in energy prices as an upside risk; a renewed spike in crude linked to Gulf tensions would bring tightening back onto the agenda at the next review. As a regional hub for oil trading and refining, Singapore's imported inflation is especially responsive to changes in oil and refined product costs.

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MAS opted for patience rather than pre-emptive action, wagering that moderately elevated inflation will subside on its own as the AI boom cools and import costs decline.

Key takeaways:

• The central bank left unchanged the rate of appreciation, width, and centre of its S$NEER policy band.
• All 10 economists surveyed by Reuters had predicted a tightening.
• MAS expects the economy to grow firmly in the near term before moderating as the AI cycle slows from its extraordinary pace and global financial conditions tighten.
• Core inflation is projected to average 1.5% to 2.0% for 2026, remain slightly elevated in the near term, and ease more noticeably from mid-2027.
• MAS noted that inflation risks are still skewed to the upside, pointing to the possibility of a sharp, sustained surge in energy or food prices.

On Wednesday, the Monetary Authority of Singapore held its monetary policy settings steady, bucking expectations for a tightening move after deciding that modestly elevated inflation should ease gradually.

The central bank, which conducts monetary policy via the exchange rate, confirmed it would keep the current rate of appreciation of the S$NEER policy band. The width and centre of the band also remain unchanged. Since the band is already set on an appreciating slope, the decision maintains the existing tightening bias without increasing it. All 10 analysts surveyed by Reuters had anticipated a tightening.

MAS stated that the economy should keep expanding at a solid pace in the coming quarters, then decelerate as the AI cycle moderates from its exceptional pace and global financial conditions tighten. AI-related activity is seen slowing in H2 2027, and the economy's positive output gap — indicating demand exceeding capacity — is expected to narrow through next year. The government will release its 2026 and 2027 growth forecasts in November.

Regarding prices, MAS sees rising imported cost pressures keeping core and headline inflation at their current modestly elevated levels in the near term. Core inflation is projected to average 1.5% to 2.0% for 2026, before declining more noticeably from mid-2027 as import costs recede.

The central bank emphasized that the outlook is subject to considerable uncertainty, with inflation risks still skewed to the upside. A sharp, sustained jump in global energy or food prices could push Singapore's import costs above forecast. Conversely, a bigger-than-expected increase in interest rates or a steeper decline in AI-related investment could weigh on growth and, consequently, inflation.

The decision indicates that MAS is willing to overlook near-term price pressures, betting they will dissipate, while maintaining its appreciating policy stance. With risks still tilted to the upside, the trajectories of energy prices and the AI cycle will likely determine whether MAS adjusts policy at its next review.

The Monetary Authority of Singapore serves as the nation's central bank.

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Additionally, advance GDP data for Q3 2026 were released:

1.1% quarter-on-quarter

• expected 1.2%, prior 1.4%

5.4% year-on-year

• expected 5%, prior 5.9%