Monetary Authority of Singapore Eases Policy After Five Years

Singapore's skyline reflecting current economic conditions.

News Summary

The Monetary Authority of Singapore (MAS) has loosened its monetary policy for the first time in nearly five years due to a significant drop in core inflation. The adjustment involves changing the slope of the S$NEER policy band, anticipating a modest appreciation of the currency. With core inflation dropping to 1.9% in November, MAS expects a cautious outlook for inflation and economic growth in the upcoming year. The central bank will conduct quarterly meetings to monitor economic developments closely.

Monetary Authority of Singapore Eases Policy for the First Time in Nearly Five Years

In a significant move, the Monetary Authority of Singapore (MAS) has decided to loosen its monetary policy for the first time in almost five years. This decision comes as the country faces a shift in economic conditions, with the easing prompted by a faster-than-expected drop in core inflation.

What’s Happening?

Core inflation in Singapore has been on the decline, slipping below 2% on a sustainable basis. As a response, MAS has adjusted the slope of the S$NEER policy band from 1.5% per annum to a more modest 1.0% per annum. It’s important to note that the width of the policy band and the mid-point level will remain unchanged, indicating a careful approach to this adjustment.

The central bank’s latest monetary policy statement describes this change as a “slight” reduction in slope and anticipates a “modest and gradual appreciation” of the currency. This reflects a measured strategy to navigate current economic challenges.

Understanding MAS’s Approach

Unlike many central banks that tweak interest rates as a primary means of influencing economic conditions, the MAS operates by managing the nominal effective exchange rate, specifically the S$NEER. This approach has been a hallmark of Singapore’s monetary policy, allowing it to maintain stability in a rapidly changing economic landscape.

Recent figures show that Singapore’s core Consumer Price Index (CPI) inflation moderated to 1.9% year-on-year in November, down from 2.1% in October. This marks the country’s lowest inflation level in three years, which played a significant role in the MAS’s decision to ease monetary policy.

Looking Ahead

Forecasts regarding core inflation paint a cautious picture, with expectations set to average between 1.0% and 2.0% in 2025—a decline from previous projections of 1.5% to 2.5% made back in October 2024. The anticipated reduction is expected to result from lower import prices, an appreciating local currency, and easing labor market conditions.

As we look further into the future, there are growing discussions about another potential easing of the monetary policy around the second half of 2025. Experts suggest that this might occur due to increased risks to inflation and GDP growth metrics.

The Year Ahead for Singapore’s Economy

In terms of Singapore’s economic growth, the MAS projects a modest improvement in 2024, with GDP growth anticipated to fall between 1% and 3%. However, it’s crucial to highlight that the forecast considers various factors, including a possible hike in the Goods and Services Tax (GST) that takes effect starting January 1. This GST increase could add some pressure on consumers.

With core inflation expected to peak between 2.5% and 3.5% in 2024—lessened to an average of between 1.5% to 2.5% when excluding the GST hike—economic analysts are kept busy as they monitor the MAS for signs of future policy relaxation.

What’s Next?

The MAS has transitioned to a quarterly monetary policy meeting schedule starting in 2024, with the next meeting lined up for October 14. As the central bank keeps a vigilant eye on both global and domestic economic developments, understanding how these factors influence inflation and growth will be essential as they plot the path ahead.

With keen eyes from economists and market watchers focused on developments, there is plenty to consider in the months leading up to potential policy shifts. Whether the MAS will act sooner rather than later in response to inflation pressures remains a hot topic, with some experts from institutions like HSBC hinting at potential easing as early as April 2025.

While changes in monetary policy can seem complex, keeping track of these developments can provide valuable insights into what’s happening in the economy and what the future might hold for both businesses and consumers.