Singapore Defies Global Easing Trend, Maintains Monetary Policy Stance

Singapore is set to buck the global easing trend and keep its policy bearings on hold as officials use the strength of the currency to tackle still-exorbitant living costs. The Monetary Authority of Singapore (MAS) is expected to maintain the slope, center, and width of its currency band, though policymakers may strike a dovish tone to pave the way for a shift in stance next year when price pressures abate.

Navigating Inflation Challenges in a Unique Economic Landscape

Diverging from Global Monetary Policy Trends

While central banks in the US, Europe, and parts of Asia have begun cutting interest rates as inflation drops from its post-pandemic peaks, the deceleration in consumer prices has slowed in Singapore, which imports the lion's share of basic goods. The MAS uses the exchange rate rather than interest rates to control price growth, guiding the local dollar against a basket of currencies to crimp the cost of imports. This unique approach sets Singapore apart from the global easing trend, as the country's policymakers prioritize tackling the persistent inflationary pressures.

Maintaining Policy Stability Amid Evolving Dynamics

The MAS's parameters for the Singapore dollar's nominal effective exchange rate, or S$NEER, have been unchanged for the past year. However, factors from the price of oil to central banks in Frankfurt, Beijing, and Washington lowering borrowing costs, and the upcoming US Presidential election have implications for Singapore's growth and the performance of its currency. Despite these external influences, the MAS is expected to maintain its policy settings, opting for a cautious approach as it navigates the complex economic landscape.

Balancing Growth and Inflation Concerns

Data due alongside the policy decision is likely to show that Singapore's growth picked up in the third quarter, helped by household spending and exports. Economists at Goldman Sachs Group Inc. expect the MAS to retain its forecast for growth of 2%–3% for this year. However, the core inflation rate, which excludes housing and private transportation costs, remains elevated, suggesting that price pressures continue to be a concern for policymakers.

Anticipating a Dovish Tone and Future Policy Shifts

While the MAS is expected to maintain its current policy settings, policymakers may strike a dovish tone to pave the way for a shift in stance next year when price pressures are expected to abate. Analysts believe the earliest the MAS could ease its policy is in January 2025, as the conditions for monetary policy easing are not yet in place, with services inflation still high.

Addressing the Cost of Living Challenges

Prime Minister Lawrence Wong has stressed the importance of a strong local dollar in his National Day address and has acknowledged the burden of the higher cost of living for many households in the city-state, which imports most necessities. The government has initiated measures to curb the cost of living for low-income citizens, and the MAS expects a discernible drop in core inflation in the fourth quarter and into 2025, suggesting a favorable outlook for easing inflationary pressures.