Singapore MAS holds policy band as AI, energy outlook eases

MAS Maintains Exchange Rate Policy

Singapore's central bank unexpectedly kept its monetary policy unchanged on Wednesday, opting to hold its exchange rate band steady. This decision marks the first pause after two consecutive tightening moves in April and July.

The Monetary Authority of Singapore (MAS) uses the exchange rate, rather than interest rates, as its primary policy instrument, maintaining the slope, width, and centre of its band. The central bank anticipates global energy and artificial intelligence (AI) driven cost pressures will ease in 2027.

This stance surprised most analysts, with only three of 20 economists surveyed by Bloomberg News having predicted the hold.

Slower Growth, Narrowed Inflation Forecast

Singapore's economy expanded at its slowest pace in a year during the third quarter. Advance data from the Ministry of Trade and Industry (MTI) on Wednesday showed gross domestic product (GDP) growth at 5.4%, down from a revised 6.2% in the second quarter. Despite the slowdown, this performance remains within the MAS' forecast range of 4.5%–5.5% for this year.

Concurrently, the MAS narrowed its core inflation forecast for this year to 1.5%–2%, down from its previous projection of up to 2.5% in July. Headline inflation is expected to be around 2% for this year.

Outlook for Prices and Economic Drivers

Both core and headline inflation gauges are projected to average 1.5%–2.5% next year. The central bank expects import costs and supply disruptions for energy and food to diminish, helping to keep domestic price pressures subdued, alongside government subsidies for health and education.

While core inflation may stay slightly elevated in the immediate quarters, it is forecast to ease discernibly from mid-2027. The MAS noted that strong orders for AI products and increased production capacity should support technology-related sectors in the near term, though AI-related activity is expected to moderate in the latter half of 2027.