Singapore Dollar: MAS surprise hold signals extended pause – MUFG

MUFG’s Michael Wan reports that the Monetary Authority of Singapore surprised markets by holding its exchange rate policy unchanged in October, against expectations for slight tightening. MAS sees core inflation easing from mid-2027, subdued domestic costs and a narrowing output gap as the AI cycle cools. Forward guidance suggests the Singapore Dollar policy band will keep appreciating to counter imported inflation.

Policy band to keep S$NEER firm

"The surprise in markets was an unexpected hold by the Monetary Authority of Singapore in its October policy, with no change to the slope or the width of the exchange rate policy band, relative to a very slight tightening in policy in the July meeting."

"The consensus and the market were positioned and expecting for MAS tightening very slightly once again this meeting. The Singapore central bank said in its statement that core inflation is expected to ease discernibly from the middle of next year, with domestic costs to stay subdued and helped by an expected slowing in supply-driven imported inflation. "

"Meanwhile, MAS also expects the positive output gap to narrow through next year as the AI cycle eases. What’s also interesting is that MAS highlighted contained unit labour cost increase in the services sector due to continued productivity gains as one key driver dampening inflation, and this could partly reflect authorities’ concerns around softening of Singapore’s labour market and some higher retrenchments in Singapore’s services sector."

"Net-net, the “forward guidance” in MAS monetary policy statement sounds like the central bank might remain on hold for now unless the situation changes, with MAS saying it is well-positioned to respond effectively to any risk to medium-term price stability and the current appreciating policy band will allow the S$NEER to continue to strengthen and lean against anticipated near-term rise in imported inflation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)