Singdollar to weaken with further MAS easing but economists rule out sharp decline
Economists generally expect the Monetary Authority of Singapore to further ease monetary policy this year but are split on the timing for the next move.

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SINGAPORE: Further monetary policy easing by the Monetary Authority of Singapore (MAS) could be on the cards as a litany of uncertainties linger on the horizon for the Singapore economy, economists said.
The Singapore dollar is set to weaken as a result, although not by much, they added.
The MAS said on Friday (Jan 24) that it would “reduce slightly” the slope of its policy band, marking its first policy easing move since March 2020.
This comes as the central bank expects contained inflation and slower growth at home in 2025.
It lowered its forecasts for core inflation this year, cutting it to a range of 1 to 2 per cent from a previous estimate of 1.5 to 2.5 per cent.
Growth is set to be “at a slower pace” of 1 to 3 per cent in 2025, down from 4 per cent in the year before.
How does MAS’ monetary policy work?
The MAS has a unique approach to monetary policy.
Unlike most central banks that manage monetary policy through interest rates, it uses an exchange rate as its main policy tool because Singapore is an open economy that depends heavily on trade.
This refers to the Singdollar nominal effective exchange rate (S$NEER) – the exchange rate of the Singapore dollar managed against a trade-weighted basket of currencies from Singapore’s major trading partners.
The MAS allows the S$NEER to float within an unspecified band. Should it go out of this band, it steps in by buying or selling Singapore dollars.
The central bank also changes the slope, width and mid-point of the band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.
The slope is probably the most common tool used by the MAS to adjust the band.
Simply put, the slope determines the rate at which the Singdollar appreciates. If the slope is reduced, this means the local currency will be allowed to strengthen at a slower pace. It strengthens at a faster pace when the slope is increased.
The mid-point is a tool generally reserved for “drastic” situations, such as recessions, when the outlook for growth and inflation sees an abrupt and rapid change.
Compared to tweaks in the slope, an adjustment in the mid-point either upwards or downwards is likely to yield a quicker and bigger impact on the currency.
This was last done in October 2022 when the MAS re-centred the mid-point of its band to rein in inflation running near multi-year highs.
Lastly, the width controls how far the Singdollar can fluctuate. This means the wider the band, the more volatile the currency can be. It is typically reserved for periods of increased uncertainties or volatility.
For instance, the band was widened in October 2001 after the September 11 terrorist attacks in the United States led to extreme volatility in the financial markets.
More recently in October 2010, the width was also widened slightly “in view of the volatility across international financial markets”.
WHY NOW?
Economists said the pivot in policy settings was aimed at giving the economy “a head start” ahead of potential headwinds.
These include the uncertainty around the pace and impact of global macroeconomic policies and the durability of the upturn in the global electronics cycle amid geopolitical conflicts, said Mizuho Bank economist Tan Boon Heng.
Then, there is the risk of increased trade frictions following United States President Donald Trump’s return to the White House.
On the campaign trail, Trump has said he would impose extra customs duties on US allies including the European Union, as well as on China. After his inauguration, Trump raised the possibility of imposing 25 per cent tariffs on Canada and Mexico.
“The risk is a global trade war, not just between the US and China but also involving EU, Canada and other countries, which will hurt Singapore given how we are a global trading hub for both goods and services,” said Mr Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corporation.
“Even without any policies implemented, this constant sense of uncertainty is still a key risk as it can weigh on business and consumer sentiment.”
Mr Ng expects the Singapore economy to grow 2.6 per cent this year. “The risk is certainly on the downside for Singapore’s economy,” he told CNA.
Meanwhile, subsiding inflation, especially with core inflation below 2 per cent, has opened the door for the MAS to make a policy shift.
UOB analysts noted that the revision in its core inflation forecast, alongside the omission of risks to the country’s inflation outlook in the policy statement, reflects the central bank’s “conviction on the restoration of price stability” in Singapore.
Central banks typically use monetary policy to manage economic fluctuations and inflation. Just as when inflation rose during the COVID-19 pandemic and central banks raced to tighten monetary policy, the time has come to do the reverse.
Global central banks have been in rate-cut mode since last year when inflation subsided enough for monetary easing. A loosening in monetary policy also helps to stimulate economic growth.
WHAT’S NEXT?
Economists generally expect the MAS to further ease monetary policy this year but are split on the timing for the next move.
Capital Economics’ Shivaan Tandon said the MAS could ease again in its upcoming policy meeting in April given how the economy had slowed sharply in the last quarter of 2024.
Growth on a quarter-on-quarter seasonally adjusted basis came in at 0.1 per cent, markedly slower than the 3.2 per cent reported in the third quarter.
“We think growth will remain below trend in the near term,” said Mr Tandon. “Soft global demand will weigh on Singapore’s export-driven economy, while the slowdown in nominal wage and employment growth will curtail domestic demand growth in the coming quarters.”
Even though she does not rule out the probability of another monetary policy recalibration, OCBC’s head of research and strategy Selena Ling thinks the MAS can afford to take a wait-and-see approach.
“The statement appears slightly dovish in the sense of growing comfort with the core inflation trajectory, but not overtly so to the extent of signalling a back-to-back easing is on the cards at this juncture,” she said.
HOW WILL THE SINGDOLLAR MOVE?
By slightly reducing the slope of its policy band, the MAS is now putting the Singdollar on a slower pace of appreciation. A weaker currency, corresponding to policy easing, can typically help to boost exports though it makes imports more expensive in Singdollar terms.
The local currency appeared unaffected. It was last seen trading at 1.346 against the US dollar on Friday afternoon, recovering some lost ground after falling slightly to 1.355 after the policy review.
The “measured” market response suggested that the MAS’ policy easing move was well anticipated, said Ms Ling.
The Singdollar touched 1.278 versus the greenback – its highest level in a decade – just four months ago but has weakened steadily since.
It is expected to remain on the same trajectory amid expectations for further MAS easing but “so long (as) the policy band doesn’t revert to a neutral slope, (the) Singdollar could still retain some degree of relative resilience selectively against trade partners”, Ms Ling added.
Mr Ng sees the Singdollar possibly weakening to 1.38 in the first quarter due to a stronger US dollar as the US Federal Reserve takes a pause with interest rate cuts.
“The Fed is likely to wait until the dust settles on President Trump’s policies before easing further. We think that can happen, maybe in June or July,” said Mr Ng, adding that he has a year-end target of 1.35 for the Singdollar against the greenback.
“That’s not too far from where the Singdollar is trading now, which indicates quite a rangebound year ahead.”