Singapore Central Bank Tightens Again in Surprise Move
The central bank said imported costs are likely to rise in the coming quarters
- Monetary Authority of Singapore unexpectedly tightened its monetary policy for the second consecutive time to contain inflation risks.
- Monetary Authority of Singapore very slightly increased the appreciation rate of its policy band while leaving other parameters unchanged.
- Singapore’s central bank expects imported costs to rise in coming quarters and core inflation to remain elevated into early next year.
SINGAPORE—Singapore’s central bank unexpectedly tightened monetary policy for the second consecutive time, though by less than in April, as it moved to contain inflation risks despite recent softer-than-expected price readings.
Monday’s tightening was forecast by just one of 10 analysts polled by The Wall Street Journal. The other nine expected the Monetary Authority of Singapore to stand pat.
“In an environment of continued heightened uncertainty, this calibrated adjustment to the policy stance builds on the tightening in April,” the MAS said.
The central bank said imported costs are likely to rise in the coming quarters as higher fuel and electronics-input costs lift prices for upstream goods. Adverse weather affecting agricultural output in Singapore’s import markets could also push up food prices.
Core inflation is expected to rise in July and remain elevated into early next year, though domestic price pressures and increases in labor costs should remain contained, the MAS said.
“Inflation should ease more discernibly in the second half of 2027 as global energy prices gradually moderate,” it said.
The MAS maintained its forecasts for both core and headline inflation to average 1.5% to 2.5% this year. It warned, however, that inflation could rise more sharply than expected if Middle East supply disruptions drive another surge in energy prices.
The central bank also expects Singapore’s economy to expand at a firm pace in 2026, widening the positive output gap slightly after above-trend growth in the first half. A positive output gap indicates that economic activity is running above its estimated potential.
The global artificial-intelligence investment cycle should support activity in technology-related industries, while construction and financial services are also expected to remain firm, the MAS said.
Still, an unexpected tightening in financial conditions or a pullback in AI-related investment could undermine the sustainability of growth and weaken inflation, it said.
The MAS said it would increase “very slightly” the rate of appreciation of the Singapore dollar nominal effective exchange-rate policy band while leaving the band’s other parameters unchanged.
The smaller adjustment appears to be a new development, said Galvin Chia, emerging-markets Asia strategist at Société Générale. He estimated the move to be 0.25 percentage point, compared with the more conventional 0.5-point adjustment.
The move suggests greater policy flexibility by giving the MAS room to act earlier and in smaller increments than markets had previously expected, he said in a note.
The decision follows the central bank’s April tightening, its first time in more than three years.
That move ended a policy pause that began after the MAS last eased in July 2025. The central bank loosened policy twice that year to support growth amid the threat of higher tariffs.
The MAS uses the exchange rate rather than interest rates as its main policy tool because Singapore’s trade flows are large relative to its domestic economy. The Singapore dollar is managed against an undisclosed basket of currencies belonging to the city-state’s major trading partners and allowed to fluctuate within a policy band.
The Singapore dollar strengthened slightly against the greenback after the decision.
The MAS said the move maintains an “appropriate appreciation path” for the policy band to contain inflationary pressures. It added that it stands ready to curb excessive volatility.