MAS allows for stronger Singdollar, raises 2026 inflation forecasts on Iran war energy shock

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SINGAPORE – Singapore’s central bank on April 14 tightened its monetary policy stance for the first time since 2022 to allow for a stronger currency in the face of soaring oil and natural gas prices from the Iran war.

The Monetary Authority of Singapore (MAS) said it has steepened the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band – signalling that it will allow the currency to appreciate and dampen the impact of rising import costs.

MAS also raised its all-items and core inflation forecasts for 2026 to an average of 1.5 per cent to 2.5 per cent, up from an earlier projection of 1 per cent to 2 per cent.

“Singapore’s imported energy costs have already risen. Prices of a wider range of imported goods and services are expected to increase in the quarters ahead. Consequently, MAS core inflation will pick up and remain elevated over the next few quarters.”

MAS said it will “increase slightly the rate of appreciation of the S$NEER policy band”. This refers to the exchange rate of the Singapore dollar against a trade-weighted basket of currencies from the Republic’s major trading partners.

Analysts estimate that the MAS move would steepen the slope of this band by 50 basis points, which leads to an annual appreciation rate of 1 per cent for the S$NEER.

Ms Yun Liu, senior Asean economist at HSBC Singapore, said MAS’ tightening was measured because Singapore faces both inflation and growth risks. Too strong a Singdollar could make the Republic’s exports less competitive. 

“The MAS does not sound overly hawkish. The main reason is because of its more downbeat growth assessment,” she said.

“We do not think the MAS would resort to aggressive tightening. We expect the MAS to take the time to assess the tightening impact while waiting for more clarity on geopolitical developments.”

However, Dr Chua Hak Bin, Maybank’s co-head of macro research, sees higher odds of another tightening in July. “The Middle East conflict will likely have a disproportionately larger impact on inflation than on economic growth,” he said.

The Singdollar was steady at 1.2728 versus the US dollar in midday trade on April 14 after the MAS decision. It has risen by about 1.4 per cent against the greenback so far this month.

MAS said Singapore’s imported prices of crude oil, natural gas and fuel have risen sharply and will directly add to electricity and gas as well as transport-related inflation in the months ahead.

“Even if supplies from the Middle East are restored, global energy prices are likely to remain elevated for some time,” it said, adding: “As higher energy costs pass through supply chains worldwide, a broader range of Singapore’s import costs will increase.”

MAS said prices for Singapore’s imported intermediate and final consumer goods are forecast to rise. Consequently, consumer price inflation for domestic non-cooked food and retail and other goods should also pick up.

Most analysts had expected MAS to tighten its monetary policy in April, after the central bank, in a report on March 23, acknowledged the risk that soaring global energy prices amid the conflict in the Middle East could drive up Singapore’s import cost pressures in the near term.

Global oil and natural gas prices have surged since Feb 28 when the US and Israel launched an air campaign against Iran. The Islamic republic, in turn, has effectively blocked the Strait of Hormuz, which in peacetime saw the flow of a fifth of global oil and natural gas supplies through it from the Persian Gulf.

A two-week ceasefire appears tenuous after peace talks between the US and Iran, held in Pakistan over the weekend, failed to produce an agreement. The US has responded by announcing its own blockade of Iranian ports.

MAS also said Singapore’s economy will slow in the coming quarters.

The Ministry of Trade and Industry (MTI) on the same day said the Singapore economy grew 4.6 per cent year on year in the first quarter of 2026, down from 5.7 per cent in the previous quarter. However, reflecting recent momentum and trajectory, the economy contracted by 0.3 per cent on a quarter-on-quarter seasonally adjusted basis, its advance estimates showed. This marked a reversal from the 1.3 per cent expansion in the fourth quarter of 2025.

MTI said: “While GDP (gross domestic product) growth remained resilient in the first quarter of 2026, the US-Israel-Iran conflict that began in end-February may weigh on economic activity in the coming quarters.”

The ministry did not revise yet its 2026 growth forecast of 2 per cent to 4 per cent, but said an update on this is expected in May.

There is hope that continued global artificial intelligence-related capex spending, as well as resilient regional electronics production, will sustain activity in Singapore’s technology-related sectors. A steady pipeline of domestic public infrastructure and housing investment should also support growth.

Still, MAS said: “GDP growth in 2026 as a whole is likely to step down from the above-trend pace of growth recorded in 2025.”

It said the accumulated energy supply shortfalls and higher input costs will continue to weigh on the outlook for the Singapore economy.

“These will exert drags on value-added in energy-dependent industries such as petrochemicals and transport,” MAS said, adding: “As a broader range of Singapore’s imported costs rise over time, profitability in more sectors will be impacted.”

While the inflationary impact from the energy supply shock is already reflected in rising prices of petrol, diesel, jet fuel and electricity, the hit to growth will gradually build up as industrial input shortages intensify, analysts said.

This will, in turn, dampen demand and slow down economic growth worldwide.

The International Monetary Fund (IMF) is widely expected to cut its forecast for global growth this week when it begins its twice-yearly spring meetings along with the World Bank.

Last week, IMF managing director Kristalina Georgieva, said: “Had it not been for this shock, we would have been upgrading global growth. But now, even our most hopeful scenario involves a growth downgrade.”