MAS allows for stronger S'pore dollar due to higher inflation forecast

The Monetary Authority of Singapore (MAS) will be allowing the Singapore dollar to appreciate to dampen inflationary pressures caused by rising global energy prices.

The central bank announced on Apr. 14 that it will slightly increase the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

This is the first time MAS is tightening its monetary policy since October 2022, at a time when the post-pandemic economic recovery and the Russia-Ukraine war drove prices up.

The current move is in response to the Middle East conflict, which has already led to a rise in Singapore's imported energy costs, MAS said.

Inflation forecasts raised

MAS raised its forecasts for core and all-items inflation to 1.5 to 2.5 per cent, up from 1 to 2 per cent previously.

The sharp rise in imported crude oil, natural gas, and fuel prices will directly add to electricity, gas, and transport-related inflation in the months ahead, the central bank projected.

It added that even if supplies from the Middle East are restored, global energy prices will likely remain elevated for some time.

This is because deliveries will be lagged, and supply will take time to recover fully.

Governments seeking to rebuild energy reserves will also add to pent-up demand.

Beyond energy, MAS said prices of a wider range of imported goods and services are expected to increase in the quarters ahead.

This will, in turn, cause prices of domestic non-cooked food, retail, and more to also pick up.

They include domestic non-cooked food and retail.

Housing inflation, however, is projected to be subdued due to weaker housing rental growth over the past year.

Economic growth projections

Singapore's gross domestic product (GDP) grew by 4.6 per cent in the first quarter of 2026, down from 5.7 per cent in the previous quarter, according to advance estimates from Ministry of Trade and Industry (MTI) released on Apr. 14.

MAS said growth will slow over the course of 2026, and the output gap should average around zero percent.

It also expects weaker growth among Singapore’s major trading partners, due to higher inflation and limited demand.

Accumulated energy shortage and higher input costs will affect not only energy-dependent industries, but also more sectors in Singapore, as the costs of more imports rise over time.

At the same time, MAS believes that regional electronics production will remain resilient, and global AI-related investment will continue for now.

These should sustain activity in Singapore’s technology-related sectors, MAS said.

It added that a steady pipeline of domestic public infrastructure and housing investment will also support growth.

Continue to monitor developments

The central bank said it will continue to closely monitor economic developments amid global uncertainties.

It also assured that it will be able to respond effectively to any risk to medium-term price stability, and stands ready to curb excessive volatility in the S$NEER.

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