The Monetary Authority of Singapore (MAS) held its monetary settings steady, reflecting the nation’s steady economic performance in the third quarter of 2024. As economies worldwide are adopting more relaxed monetary policies in response to cooling inflation, Singapore’s decision to maintain its stance highlights its unique approach to combating inflationary pressures.
This decision comes as the city-state’s economy demonstrates resilience, driven by robust manufacturing and construction sectors. Despite growing external risks, Singapore’s central bank remains focused on ensuring medium-term price stability while supporting growth, marking its divergence from a global trend of interest rate cuts.
Unlike many central banks that use interest rates as their primary tool, MAS employs the exchange rate as its key mechanism to manage monetary policy. Specifically, the MAS controls the Singapore dollar’s nominal effective exchange rate (S$NEER) against a basket of major trading partners’ currencies. It adjusts the pace of appreciation or depreciation of the local currency by manipulating the slope, width, and center of the currency band. Importantly, the MAS has maintained the slope, width, and center of this currency band, signaling that the Singapore dollar will continue on a gradual appreciation trajectory.
The decision not to change these parameters comes at a time when other central banks are taking more aggressive steps to ease monetary policy, especially with widespread concerns about global economic slowdown. Policymakers in the US, New Zealand, and other advanced economies have opted for substantial interest rate cuts, reflecting cooling inflation and economic weakness. Yet, MAS’s stance suggests that inflationary pressures, especially those related to imports, remain a concern for the Singaporean economy.
“The risks to Singapore’s inflation outlook are more balanced compared to three months ago,” MAS said in a statement, reinforcing its assessment that its current settings are “still consistent with medium-term price stability.”
Following the MAS announcement, the Singapore dollar strengthened, climbing from a session low and trading at 1.3060 against the US dollar. The move reflected confidence among investors that the central bank’s decision was well-calibrated, even though a majority of economists had already anticipated no change in policy.
Of the 13 economists surveyed by Bloomberg, only three had predicted a change in the monetary stance, underscoring the prevailing expectation of continuity in Singapore’s policy framework. However, the tone of the central bank’s statement was interpreted as cautious rather than dovish.
Selena Ling, chief economist at Oversea-Chinese Banking Corporation (OCBC), commented on the central bank’s announcement, noting, “The overall tone is not dovish at all. If anything, there is now a concern about unit labor cost growth and hence services growth, albeit the 2% core inflation forecast for 2025 is retained.” This suggests that while inflationary risks are more balanced, pressures on wages and services could still pose risks to future inflation.
Accompanying the MAS decision, the Ministry of Trade and Industry released data highlighting Singapore’s strong economic performance in the third quarter. Gross domestic product (GDP) expanded by 2.1% from the previous quarter, driven largely by manufacturing and construction activities. Year-on-year, the economy grew by 4.1%, outpacing economists’ forecasts of 3.8% growth.
The resilience of the manufacturing sector, buoyed by the recent upturn in global electronics demand, contributed to this robust performance. At the same time, the construction industry, which has been bolstered by an influx of government projects and infrastructure developments, provided additional momentum to economic growth.
The MAS maintains its forecast for full-year GDP growth to come in at the upper end of its 2-3% target range. The central bank also projects that the negative output gap, which measures the difference between actual and potential output in the economy, will close by late 2024.
Looking ahead, the MAS remains optimistic that the Singaporean economy will expand at a pace close to its potential rate in 2025. However, significant uncertainties still loom, particularly those stemming from global geopolitical tensions, trade conflicts, and the potential for a sustained slowdown in the global electronics market.
Inflation in Singapore has eased somewhat over the course of 2024, but prices remain elevated, particularly in key sectors. The MAS’s preferred measure of core inflation—which excludes accommodation and private transport costs—registered at 2.7% in August, higher than market expectations. While this figure reflects a slight deceleration from previous months, it underscores the persistent inflationary pressures that the country faces.
Notably, food and fuel prices have contributed to keeping inflation above the central bank’s comfort zone. While the MAS does not have an explicit inflation target, it has stated that core inflation at around 2% is consistent with price stability.
In its latest statement, the MAS expects core inflation to moderate and remain contained during the fourth quarter of 2024, finishing the year at around 2%. Nevertheless, the central bank highlighted ongoing risks to the inflation outlook, particularly from external sources, such as geopolitical conflicts in the Middle East and the ongoing trade tensions involving the United States.
While Singapore’s domestic economy remains on a stable path, the MAS acknowledged that external risks could pose challenges in the months ahead. The central bank pointed to several areas of concern, including escalating geopolitical tensions, especially in the Middle East, and the potential fallout from US tariff policies. These external shocks could drive up global energy and commodity prices, adding to inflationary pressures in Singapore.
Another key area of uncertainty lies in the durability of the global electronics upturn. Singapore’s economy has benefited from a rebound in demand for semiconductors and electronics components, which have bolstered its manufacturing sector. However, a slowdown in global demand for electronics or disruptions in global supply chains could curtail this growth, impacting Singapore’s overall economic performance.
Against this backdrop, MAS indicated that it may reassess its monetary policy stance at its next meeting, scheduled for January 2025. “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,” economists at DBS Group Holdings Ltd. wrote in a note.
Singapore’s decision to hold its monetary policy steady stands in stark contrast to the policy moves seen in many advanced economies. Central banks in the US, Eurozone, New Zealand, and other regions have opted for aggressive interest rate cuts to stave off economic weakness and encourage growth. However, Singapore’s strategy of managing its exchange rate to control inflation reflects its unique position as a small, open economy heavily reliant on imports.
By allowing the Singapore dollar to appreciate gradually, the MAS can help blunt the impact of rising global prices on imported goods, such as food and energy. This approach helps maintain price stability without resorting to sharp interest rate changes, which could have unintended consequences for the domestic economy.
At the same time, the MAS’s caution reflects a recognition that inflationary pressures, while moderating, have not completely dissipated. The balance between supporting economic growth and ensuring price stability remains delicate, particularly in a volatile global environment.
