MAS eases Singdollar policy for first time since 2020 as it lowers key inflation forecast

SINGAPORE – Singapore’s central bank eased its monetary policy stance to favour a more gradual appreciation of the Singapore dollar because it now expects core inflation in 2025 to be lower than earlier projected.

The Monetary Authority of Singapore (MAS) said on Jan 24 that it will reduce the prevailing rate of appreciation in the value of the Singapore dollar versus a basket of currencies of its major trading partners. MAS refers to this value as the Singapore dollar nominal effective exchange rate (S$Neer), or the trade-weighted exchange rate.

Even before the MAS announcement, the Singapore dollar had eased to around 1.35 against the US dollar from a 10-year high of 1.27 in October 2024, as the US dollar rallied on anticipation of slower US rate cuts. It traded at 1.351 to the US dollar, up 0.3 per cent from the previous day’s close at 11.20am, after MAS’ move. 

Analysts said the much-anticipated MAS move is unlikely to have an immediate impact on exchange rates at the money changer or on currency markets, given that the Singdollar has already weakened in recent months. So people who are travelling abroad or who need to transmit money online should not be worried, they added.

The shift to an easier Singdollar policy indicates that MAS is at present not too worried about inflation and is prepared to allow a weaker exchange rate if Singapore’s growth outlook takes a turn for the worse amid a sharp decline in global demand due to trade frictions.

Usually, a fall in a currency would make exports more competitive. But for consumers, it may make some purchases, travel and study abroad more expensive.

Ms Sheana Yue, an analyst at research house Oxford Economics, said: “Our base case is for further easing. A marked fall in global demand could see the next loosening as soon as April.”

Announcing the first such move since March 2020, MAS said: “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 will closely monitor global and domestic economic developments, and remain vigilant to risks to inflation and growth.” 

With this move, MAS joins a growing host of policymakers and private economists worldwide who believe the anticipated hit to economic growth from US President Donald Trump’s more protectionist trade stance will outweigh the fuel to inflation from the higher tariffs he is planning.

The Government has already lowered Singapore’s 2025 growth outlook, expecting the economy to expand at a slower pace of 1 per cent to 3 per cent, down from 4 per cent in 2024.

The last time MAS eased the pace of the Singdollar’s appreciation to stimulate economic growth was in 2020, when the economy was headed for its worst recession ever in the wake of the Covid-19 pandemic.

This time around, the decision comes after inflation, which had soared to its highest levels in more than a decade in 2023, dropped to a three-year low in December 2024.

The decline in inflation came after MAS tightened the monetary policy in five successive moves between October 2021 and October 2022 and held on to it until now to favour a stronger Singapore dollar.

Inflation data released on Jan 23

showed core inflation – which strips out private transport and accommodation costs to better reflect household expenses – eased to 1.8 per cent year on year, a three-year low. For 2024 as a whole, core inflation averaged 2.7 per cent, down from 4.2 per cent in 2023.

As a result, MAS cut its forecast for 2025 core inflation to 1 per cent to 2 per cent, from 1.5 per cent to 2.5 per cent.

Said MAS: “Business cost- and demand-driven inflationary pressures are expected to remain contained. Singapore’s imported costs should stay moderate, reflecting forecasts of global oil price declines and favourable supply conditions in key food commodity markets.”

It also noted: “At the same time, consumer price inflation for essential services such as public healthcare, pre-school education and public transport will be dampened by additional government subsidies.”

MAS kept its 2025 headline inflation forecast unchanged at an average of 1.5 per cent to 2.5 per cent, on an anticipated pickup in private transport inflation that will be partly offset by a slowdown in accommodation inflation. 

Commenting on the outlook for economic growth, MAS said global economic policy uncertainty has risen since the last monetary policy review in October 2024, mainly reflecting expectations of increasing trade policy frictions.

MAS said the prospect of persistently elevated inflation has contributed to a tightening of global financial conditions. Meanwhile, manufacturing and trade activity is anticipated to ease.

Said MAS: “Singapore’s GDP (gross domestic product) growth is projected to moderate over 2025. The impact of shifts in global trade policies could weigh on the domestic manufacturing and trade-related services sectors.

“All in, global growth could slow over 2025.”

Ms Selena Ling, chief economist at OCBC Bank, said that while trade frictions could prove inflationary for some economies, the expected impact on Singapore’s import prices are tipped to be offset by disinflationary drags exerted by weaker global demand.

“Assuming that Trump 2.0 tariffs begin to kick in later this year, the external headwinds to growth may turn more challenging in the second half of 2025. But there are still significant uncertainties over the timing and magnitude of the tariffs.” she added.

MAS uses S$Neer as its main monetary policy tool to contain imported inflation because Singapore imports almost everything it consumes.

The S$Neer is allowed to move up and down within an undisclosed policy band set by MAS. The S$Neer can therefore appreciate or depreciate within the band in the short term when conditions in financial markets change or when shocks hit the Singapore economy.