Singapore has chosen to keep its monetary policy settings unchanged, bucking the global trend of policy easing as the city-state’s economy showed robust growth in the third quarter of 2024. The Monetary Authority of Singapore (MAS), which manages monetary policy through the exchange rate rather than interest rates, decided to maintain the slope, width, and center of the Singapore dollar’s currency band. This approach helps to curb imported inflationary pressures by keeping the local currency on a gradual appreciating path.
In its statement on Monday, the MAS highlighted that “risks to Singapore’s inflation outlook are more balanced compared to three months ago.” It noted that current policy settings remain consistent with medium-term price stability. Following the announcement, the Singapore dollar strengthened slightly, trading at 1.3060 against the US dollar at 9:09 AM local time.
A Different Path from Global Peers
The decision by the MAS contrasts with the policy actions taken by other major central banks, many of which have opted for aggressive interest-rate cuts in response to cooling inflation. In recent meetings, policymakers in the US, New Zealand, and other developed markets have pursued large rate reductions, often cutting rates by 50 basis points, as inflationary pressures have eased. However, Singapore’s inflation dynamics, driven largely by the import of basic goods, have yet to experience a similar cooling.
“The overall tone is not dovish at all,” said Selena Ling, chief economist at Oversea-Chinese Banking Corporation (OCBC). She pointed out that the MAS still has concerns about rising labor costs, which could fuel higher prices in the services sector, despite maintaining its 2% core inflation forecast for 2025.
The MAS has kept its parameters for the Singapore dollar’s nominal effective exchange rate (S$NEER) steady for the past year. The central bank manages the currency by adjusting its pace of appreciation or depreciation against a basket of currencies from Singapore’s major trading partners. However, the specifics of the currency basket, the band, and the rate of adjustment remain undisclosed.
Singapore’s Economy Accelerates
Alongside the monetary policy decision, data from the Ministry of Trade and Industry (MTI) showed that Singapore’s economy gained momentum in the third quarter, led by growth in the manufacturing and construction sectors. Gross domestic product (GDP) grew by 2.1% from the previous quarter, and expanded by 4.1% year-over-year, surpassing economists’ expectations of 3.8% growth.
The MAS remains optimistic about Singapore’s economic prospects, forecasting GDP growth near the upper end of its 2% to 3% target range for 2024. It also anticipates that the economy’s negative output gap will close by the end of 2024, signaling that the economy will be operating closer to its full potential.
“Next year, the Singapore economy is currently forecast to expand at close to its potential rate,” the MAS stated. However, it cautioned that significant uncertainties remain, including geopolitical tensions, global macroeconomic policy shifts, and the sustainability of the recent uptick in electronics manufacturing.
Inflation Risks and Future Outlook
While inflation has eased somewhat over 2024, it remains elevated, particularly in areas like food and fuel. The MAS’s core inflation gauge, which excludes accommodation and private transportation costs, rose to 2.7% in August, exceeding estimates. Although the central bank does not have a specific inflation target, it has suggested that core inflation just below 2% is consistent with long-term price stability.
In its latest statement, the MAS reiterated that core inflation momentum is expected to remain contained in the fourth quarter of 2024, with inflation likely to end the year around 2%. Economists, however, are watching closely for signs of easing in inflationary pressures. According to Tamara Mast Henderson, an economist at Bloomberg, “If upside risks to inflation from Middle East tensions and US tariffs abate, we think the MAS will loosen its tight settings at its next meeting in January.”
Global Headwinds Loom
Although Singapore’s economy has shown resilience, several external factors could impact its growth trajectory. Ongoing geopolitical and trade conflicts, the pace of global monetary easing, and the uncertain outlook for the global electronics industry pose risks. Nevertheless, Singapore’s steady monetary policy reflects confidence in the nation’s ability to navigate these challenges while maintaining stability.
As the MAS continues to focus on managing inflation and supporting economic growth, its decision to maintain the current policy settings underscores the city-state’s unique approach to monetary management, prioritizing currency stability in a turbulent global environment.
Davin