MAS loosens monetary policy for the first time in five years amid slower growth outlook

MAS will reduce the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band slightly. However, the width of the band and the level at which it is centred will remain unchanged. “This measured adjustment is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability,” MAS stated, adding that Singapore’s economic growth momentum is expected to slow this year. Core inflation forecasts for 2025 were also revised downwards, with MAS noting that the key gauge for consumer prices has “moderated more quickly than expected.” Core inflation, which excludes private transport and accommodation costs, is now expected to average between 1 and 2 per cent, compared to the earlier estimate of 1.5 to 2.5 per cent. The revision follows the release of data on Thursday showing that core inflation reached a three-year low of 1.8 per cent in December 2024, down from 1.9 per cent in November. Headline inflation, which accounts for all categories, is expected to remain within the previously forecast range of 1.5 to 2.5 per cent in 2025. MAS explained that inflationary pressures from both business costs and domestic demand are expected to remain contained. Imported costs are projected to be moderate, supported by declining global oil prices and stable food commodity supply conditions. “While an escalation of trade frictions could be inflationary for some economies, their impact on Singapore’s import prices is likely to be offset by the disinflationary drags exerted by weaker global demand,” MAS noted. Domestically, consumer price inflation for essential services such as public healthcare, preschool education, and public transport is expected to ease, helped by additional government subsidies. On the broader economic front, MAS highlighted rising global economic policy uncertainties, including increasing trade frictions and tightening global financial conditions. These developments, coupled with the normalisation of manufacturing and trade activity after periods of frontloading, could slow global economic growth in 2025. In Singapore, the economy is projected to expand at a slower pace of 1 to 3 per cent this year, down from 4 per cent growth in 2024. Trade-related sectors, particularly manufacturing, may face challenges stemming from shifts in global trade policies. MAS remains vigilant about inflation and growth risks, pledging to closely monitor both global and domestic developments. “The outlook for Singapore’s growth and thus inflation remains subject to uncertainties in the external environment,” the central bank stated. This policy move follows a two-year period of unchanged monetary policy, last adjusted in October 2022. Before this, the last easing occurred in March 2020, when Singapore faced the onset of a deep recession due to the COVID-19 pandemic. MAS manages Singapore’s monetary policy differently from most central banks, which focus on interest rates. Instead, it uses the S$NEER band, allowing the Singapore dollar to rise or fall against the currencies of the country’s main trading partners. The central bank makes adjustments to the slope, mid-point, and width of the band to achieve its monetary policy objectives. Economists were divided ahead of the announcement, with half expecting no changes and the other half predicting a loosening of policy.