MAS raises 2026 inflation forecasts but keeps Singdollar policy unchanged

SINGAPORE – The Monetary Authority of Singapore (MAS) kept the setting for its Singapore dollar policy unchanged on Jan 29, as widely expected, even as it raised its forecasts for inflation in 2026.

In its monetary policy statement, MAS said it will keep the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate, or the S$NEER band, with no change to the width or level at which it is centred.

“The risks to the growth and inflation outlook are tilted to the upside at this point,” said the central bank, whose aim is to maintain medium-term price stability that is conducive to growth.

MAS said persistently stronger-than-expected economic growth could lead to higher wage growth, boosting consumer demand and driving up inflation. Additionally, supply shocks, including those triggered by geopolitical developments, risk lifting imported costs.

“Nevertheless, some downside risks are also present, reflecting underlying fragilities in the global economy. For instance, a sharp correction in global financial markets or an abrupt pullback in global AI (artificial intelligence)-related investment would induce a faster pace of easing in growth and consequently lower inflation,” it said.

MAS raised its 2026 forecasts for both core and all-items inflation to a range of 1 per cent to 2 per cent, from 0.5 per cent to 1.5 per cent in its October 2025 statement. Core inflation strips out accommodation and private road transport costs, making it a better gauge of household expenses.

But MAS said that on average over the year, core inflation momentum is expected to come in at a pace that is slightly below trend. All-items inflation would reflect subdued accommodation costs with the continued pass-through of the weaker growth in housing rents from 2025.

MAS, which holds four policy reviews per year, has left its monetary policy unchanged since its last easing in April 2025 in response then to easing inflation and rising risks to economic growth.

Its latest decision to do so is in line with most economists’ views, given the Singdollar’s rise against the sliding US dollar and Singapore’s growth coming in stronger than expected.

MAS noted in its statement that the trade-weighted Singdollar has strengthened in the upper half of its appreciating policy band since its last review in October 2025.

The Singapore dollar briefly weakened slightly after the MAS decision, dipping 0.1 per cent to 1.2635 per US dollar as at 9.40am. US dollar weakness has

pushed the Singdollar up 1.7 per cent in 2026 to an 11-year high against the greenback.

Unlike most central banks, which target interest rates, MAS manages monetary policy by guiding the exchange rate of the local currency. This is because Singapore is a small and trade-reliant economy, where almost 40 cents of every Singdollar is spent domestically on imports. This means the exchange rate has a much bigger impact on inflation than domestic interest rates.

A tighter policy – which works to boost the Singdollar – would exert downward pressure on inflation but could dampen economic growth by making exports more expensive. 

With Singapore’s growth momentum looking strong in the first quarter of 2026 and simmering core inflation pressures, Maybank economists Chua Hak Bin and Brian Lee expect MAS to slightly steepen the S$NEER, which will help the Singdollar to strengthen, in the April or July meeting to pre-empt higher inflationary pressures. 

They said Singapore’s economic growth in the fourth quarter of 2025 will likely be upgraded to 6.5 per cent, from the flash estimate of 5.7 per cent. Full-year 2025 growth will likely be raised to 5 per cent from 4.8 per cent.

OCBC Bank forex strategist Christopher Wong expects the S$NEER to continue hovering in the upper half of the range until the next MAS meeting in April.

Market expectations that MAS will eventually tighten should keep the Singdollar relatively firm against its trading partners, but MAS policy is only one of several forces driving USD/SGD, he said.

Broader moves in the US dollar, shifting Federal Reserve rate expectations, developments in the renminbi, regional growth-inflation trends and overall risk sentiment will remain key in shaping USD/SGD beyond the near-term policy reaction, he added.

Goldman Sachs economists said MAS will want clearer evidence of a sustained firming in core inflation momentum before adjusting its monetary policy settings.

They reckoned that by the April meeting, there may not be enough new data to warrant another upgrade to the core inflation outlook.

“We therefore maintain our expectation that MAS will increase the slope of appreciation of the S$NEER policy band to 1 per cent per annum at the July meeting,” the Goldman Sachs economists said.

MAS said economic activity in Singapore’s major trading partners remained resilient in the last quarter of 2025, buoyed by the AI-related investment boom and reduced trade policy uncertainty. But global growth in 2026 is expected to ease modestly, as the lagged effects of higher tariffs weigh on final demand and trade.

MAS added that supportive fiscal and monetary policies could mitigate the extent of the global economic moderation. The global AI capital expenditure upcycle should also continue apace, providing strong support for economies plugged into the electronics supply chain.

In the near term, Singapore’s growth should be resilient, although uncertainties to the outlook remain, MAS said.

Growth is expected to be underpinned by continued spending on AI. Financial services should be supported by steady lending and capital market activity, while the construction sector will benefit from a steady pipeline of public and private projects.

On Feb 12, Prime Minister Lawrence Wong, who is also Finance Minister, will unveil Budget 2026.

OCBC chief economist Selena Ling said the Budget could enhance and reinforce schemes that help companies expand and scale abroad, participate in digital trade corridors and move up regional value chains. 

“So beyond short-term subsidies and support, there will be a strategic and competitive repositioning to navigate a fragmenting and higher-cost world,” she said.