Singapore's MAS holds exchange-rate policy steady, surprising economists who expected another tightening

Singapore's central bank left its currency policy unchanged on Wednesday, pausing after two earlier tightenings this year and confounding a Reuters poll in which every economist surveyed had expected another slight steepening of the policy band.

What MAS decided

The Monetary Authority of Singapore left its exchange-rate policy unchanged on Wednesday, Oct. 14, pausing after two tightenings earlier this year. It said it would maintain the rate of appreciation of the Singapore dollar nominal effective exchange rate policy band, with no change to the width of the band or the level at which it is centred.

The hold surprised markets. All 10 analysts in a Reuters poll had expected another slight steepening of the band, InvestingLive reported, citing ANZ. A separate Bloomberg poll cited by The Business Times found 17 of 20 economists had forecast a steeper slope, with three correctly calling for no change.

Growth still firm, inflation slightly elevated

MAS pointed to a still-strong economy. Advance estimates from the Ministry of Energy, Trade & Industry showed Singapore's GDP grew 5.4% year on year in the third quarter and 1.1% on a quarter-on-quarter seasonally adjusted basis, a slightly slower pace than the prior quarter, the central bank said. Growth was led by technology-related sectors, with construction, financial services and real estate firm and some weakness in consumer-facing segments.

Core inflation, which excludes accommodation and private transport, rose to 2.1% in July and August from 1.5% in the second quarter as higher import costs spread through goods and services. Food inflation rose to 2.2% from 1.9%. Services inflation came in lower than MAS had projected, held down by enhanced government healthcare subsidies and sharper competition in telecommunications.

Since September, energy commodity prices have risen again and are expected to stay high near term, MAS said, while global and regional food prices are also expected to pick up. That will keep core and headline inflation "slightly elevated" in the months ahead.

A narrower 2026 forecast, door open to act later

For 2026 as a whole, MAS narrowed its core inflation forecast to 1.5% to 2% from the prior 1.5% to 2.5% range, The Business Times reported, and said CPI-All Items inflation should come in around 2%. For 2027, both core and headline inflation are projected to average 1.5% to 2.5%. Core inflation is expected to ease more discernibly from mid-2027 as import costs ebb and domestic costs stay subdued.

MAS said inflation risks remain tilted to the upside, including from a sharp, sustained surge in energy or food prices or from broader spillovers from the AI boom that push unit labour costs higher. On the other side, a sharper pullback in AI investment or higher-than-expected interest rates could weigh on growth, and Middle East energy supply could recover faster than assumed.

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," MAS said. It added that it is well-positioned to respond to any risk to medium-term price stability.

Why the pause, and what comes next

MAS had raised the slope of the policy band in April, its first tightening since 2022, and again by a smaller margin in July, when analysts estimated the slope was lifted to about 1.25%, The Business Times reported. Since July, the S$NEER has strengthened modestly within the upper half of the band.

Khoon Goh, head of Asia research at ANZ and one of the few who correctly forecast Wednesday's hold, said the effects of the April and July moves are still feeding through, so MAS saw no need to tighten further now even though third-quarter growth beat expectations and near-term core inflation remains slightly elevated. He stressed the decision does not mean the tightening cycle is over: MAS could steepen the band again if upside inflation risks materialise next year, with imported energy costs the most likely trigger.