Singapore Unexpectedly Pauses Monetary Policy Tightening

(RTTNews) - The Monetary Authority of Singapore unexpectedly kept its monetary policy unchanged on Wednesday after two consecutive tightening.

The MAS maintained the rate of appreciation of the policy band. Also, there will be no change to the width of the band and the level at which it is centered, the bank said in a statement. The bank was widely expected to tighten the policy.

Rather than adjusting interest rates, the MAS use the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool.

Previously, the bank had tightened its policy in April and July.

"The current appreciating policy band will allow the S$NEER to continue to strengthen and lean against the anticipated near-term rise in imported inflation, ensuring the gradual easing of inflationary pressures in 2027," the bank said.

Due to firming imported cost pressures, overall inflation and core inflation are expected to be at the current slightly elevated levels in the months ahead. However, inflation is projected to moderate over next year as import costs ebb and domestic price pressures stay subdued.

MAS core inflation is forecast to average 1.5-2.0 percent this year, while CPI inflation is projected to be around 2.0 percent. Next year, both MAS core inflation and CPI inflation are projected to average 1.5-2.5 percent.

Official data released earlier in the day showed that the city-state economy grew 5.4 percent on a yearly basis in the third quarter, moderating from the 6.2 percent expansion seen in the second quarter. However, growth surpassed economists' forecast of 5.0 percent.

The central bank expects the economy to continue expanding steadily in the quarters ahead on strong orders for AI products and an increase in production capacity. The positive output gap in the economy is forecast to narrow through next year.

The resilient economic growth, combined with a positive output gap, and lingering upside inflation risks suggests that MAS is likely not done with tightening, and tightening in January is likely if the risks to inflation materialize, ING economist Deepali Bhargava said.