News analysis
MAS focus turns to inflation risk amid Singapore’s strong growth trajectory
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A growing cohort of economists expects the Monetary Authority of Singapore to up its defences against inflation by tightening its Singapore dollar policy in 2026.
PHOTO: ST FILE
SINGAPORE – If the damage from a volatile US trade policy remains contained, there is a good chance that Singapore’s economic growth in 2026
The pace of growth will be relatively slow – after running above 4 per cent in the past two years – but household spending and the job market are likely to remain steady, with industrial production at near full capacity.
In fact, the Monetary Authority of Singapore (MAS) expects unit labour cost to rise in 2026. Higher wages would further support private consumption.
Experts believe that is a recipe for higher core inflation, a gauge of changes in prices of goods and services that households regularly use.
A growing cohort of economists expect MAS to boost its defences against inflation by tightening its Singapore dollar policy in 2026, though the move is unlikely to come as soon as Jan 29.
They argue that if the damage from a volatile US trade policy
A minority of analysts predict that the MAS may move to tighten policy as soon as this week when it is scheduled to release its quarterly monetary policy statement on Jan 29.
MAS on Jan 23 said both core and all-items inflation are projected to rise in 2026 from their low rates in 2025, and they would be updated in its upcoming monetary policy statement on Jan 29.
Analysts said the possibility of MAS upgrading its inflation forecast would signal a reversal of its easing policy bias from 2025.
“Since 2010, MAS has tended to tighten its foreign exchange policy when core inflation forecasts for the current year were upgraded,” said Mr Ang Kai Wei, the Singapore-based Asean economist at Bank of America, who now expects MAS to tighten its Singapore-dollar policy on Jan 29.
Expectations of a tighter policy are already pushing up the trade-weighted Singdollar – which MAS refers to as the nominal effective exchange rate (S$NEER) – that measures its strength against currencies of major trading partners.
But the Singdollar’s performance has been mixed in recent weeks, rising against the US dollar, Japanese yen and euro, and retreating against the Malaysian ringgit and Thai baht.
In early trade on Jan 26, the Singapore dollar climbed to its strongest level
A gauge of the US dollar against a basket of major currencies index slid 0.4 per cent to the lowest level since September, extending last week’s 1.6 per cent decline, on speculation that the US may help to boost the yen. This has added to pressure on the US dollar from unpredictable US policymaking, tariff tensions between the US and Europe, and attacks on the US Federal Reserve’s independence.
A tighter S$NEER should boost the Singdollar against other currencies, especially if the US dollar remains weak, in the coming months.
That may not stop Singaporeans from spending but will still restrain the pace of gains in prices of imported goods – the major contributor to inflation in Singapore.
Mr Ang said wage growth has been stronger than expected, despite concerns over artificial intelligence-driven job displacement, while a solid growth outlook is now working its way through into inflation.
“At the present run-rate, monetary conditions may perhaps be turning excessively accommodative,” he said.
Mr Ang believes MAS’ first tightening move will be “somewhat balanced” to keep the possibility of another move in July, that is, if the growth outlook and labour market conditions maintain their present trajectory into the second half of the year.
Mr Jester Koh, UOB’s associate economist, said MAS may raise both its 2026 core and headline inflation forecast ranges to 1 per cent to 2 per cent, up from its earlier projection of 0.5 to 1.5 per cent.
While the possibility of a pre-emptive tightening move this week cannot be ruled out, Mr Koh believes April or July will be more suitable.
‘’Our analysis suggests that while growth and inflation momentum have broadly met the criteria for monetary policy normalisation (tighter policy stance), there is little urgency to act now,’’ he added.
He also highlighted risks to the resilient economic outlook.
“A sizeable macro-economic shock, such as a geopolitical event or persistent weakness in macro data, could trigger a revaluation of major US equity indices, given stretched valuations. If the correction is significant, it could potentially derail AI-related capital expenditure plans,” he said.
Asia’s leading tech exporters, including Singapore, have been major beneficiaries of the artificial intelligence-inspired investments feeding demand for their electronic exports, mainly semiconductors. Hence, they stand vulnerable to an abrupt and significant correction in the AI investment boom.
That risk was evident when US stock and bond prices collapsed on Jan 20 in response to US President Donald Trump’s threats of imposing a 10 percentage point tariff increase on imports from eight European countries – Germany, Britain, France, the Netherlands, Sweden, Denmark, Finland and Norway – seen as opposing his plans to acquire Greenland.
The markets reversed most of the losses a day later after Mr Trump walked back his threats and agreed to negotiate.
Hence, some analysts still believe MAS may not change its stance just yet.
Mr Edward Lee, Standard Chartered Bank’s chief economist and head of FX for ASEAN and South Asia, said while Indonesia, the Philippines and Thailand might still cut interest rates, the era of easier monetary policy in the region is likely to be over soon.
“We are not expecting any rate hikes yet. If anything, we may hear more questions on whether Singapore may tighten its monetary policy given a likely pickup in inflation and should growth turn out to be much better than expected again,” he said.
While negative risks remain, odds of a rare but extremely negative event have lessened, he said.
“Given the latest economic developments, the current monetary policy settings may be deemed too accommodative. We see a risk of tightening ahead, more so in April than January,’’ he said, referring to the MAS quarterly policy meetings.
Ms Yun Liu, HSBC’s ASEAN economist, said MAS is traditionally an early mover in monetary policy in Asia; therefore it is considered a likely candidate when the market touts the idea of policy normalisation.
“But without one single major data release of 2026, we doubt if January is the right time for the MAS to tighten its monetary policy. We expect the MAS to stay put this week, but the risk of tightening may be more likely in April,” she said.
