MAS tightens monetary policy, raises inflation forecast for 2026
The forecast for core and headline inflation was raised to 1.5 to 2.5 per cent, from 1 to 2 per cent previously.
The logo of the Monetary Authority of Singapore on Feb 13, 2026. (File photo: CNA/Ili Mansor)
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SINGAPORE: The Monetary Authority of Singapore (MAS) on Tuesday (Apr 14) tightened monetary policy and increased its inflation forecast as the Middle East conflict causes volatility in energy prices and supply.
A tighter policy stance strengthens the Singapore dollar, which can help reduce imported inflation.
The central bank said in its April monetary policy statement that it would "increase slightly" the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.
There will be no change to its width and the level at which it is centred.
"MAS is in an appropriate position to respond effectively to any risk to medium-term price stability and will continue to closely monitor economic developments amid uncertainties in the external environment," the central bank said, adding that it stands ready to curb excessive volatility in the S$NEER.
Increasing the slope of the policy band means that the Singdollar will be allowed to strengthen more quickly than before, which will make imports cheaper.
MAS also raised the forecast for core and headline inflation to 1.5 to 2.5 per cent on Tuesday, from 1 to 2 per cent previously. Core inflation excludes accommodation and private transport costs.
In October last year, MAS said it expected headline and core inflation to be between 0.5 to 1.5 per cent in 2026. That range was raised by 0.5 percentage points in January, and it has now been raised a second time.
The move to tighten monetary policy was widely expected by economists, some of whom raised their own inflation predictions for the year and are expecting further tightening.
MAS manages monetary policy through the exchange rate instead of interest rates. It lets the Singapore dollar strengthen or weaken against currencies of the country's main trading partners within an undisclosed band.
The central bank can change the slope, mid-point or width of the band.
MAS last tightened its monetary policy in October 2022, when prices were rising because of increased demand after the COVID-19 pandemic and high energy prices because of the Russia-Ukraine war.
It has kept policy unchanged since April last year, when it loosened policy amid US-China trade war fears.
Singapore's imported energy costs have already risen, and the prices of a wider range of imported goods and services are expected to increase in the quarters ahead, so core inflation will pick up and remain elevated, said MAS.
Even if supplies from the Middle East are restored, prices will stay high for some time. Deliveries will be lagged, supply will take time to recover, and governments will be trying to rebuild their energy reserves.
Prices of intermediate and final consumer goods are also expected to go up, though weaker housing rental growth means that accommodation inflation will be subdued.
GROWTH CONCERNS
MAS also said higher inflation will crimp final demand in the coming months, and Singapore's major trading partners are expected to see weaker growth.
"The situation in the Middle East is evolving and remains highly uncertain. GDP growth in 2026 as a whole is likely to step down from the above-trend pace of growth recorded in 2025," said MAS.
Singapore's economy grew 4.6 per cent in the first quarter, down from 5.7 per cent in the fourth quarter of last year, according to advance estimates released by the Ministry of Trade and Industry (MTI) on Tuesday.
On a quarter-on-quarter seasonally adjusted basis, the economy contracted 0.3 per cent. MTI warned that the Middle East conflict may weigh on economic activity in the coming quarters.
Accumulated energy supply shortfalls and higher input costs will weigh on the outlook for the Singapore economy, said MAS.
But economic activity in some advanced markets should remain resilient, with global artificial intelligence-related investment expected to continue for now, the central bank said.
Domestically, a steady pipeline of public infrastructure and housing investment will also support growth.
MAS said there are considerable risks to the outlook for both inflation and growth. For example, a more persistent disruption to energy supplies will worsen inflationary pressures worldwide and deepen the drag on growth. Industrial production may also be curtailed if key intermediate inputs are not available.
A tightening in global financial conditions or an unexpected pullback in AI-related investment would also compound downside risks to growth.
An update to the GDP forecast of 2 to 4 per cent will be given in May.
