Singapore is on the brink of a significant shift in its monetary policy as global trade tensions escalate. Following a dramatic wave of tariffs announced by the United States, market watchers anticipate that the Monetary Authority of Singapore (MAS) will respond by easing its currency settings. This policy move, expected to take place soon, is driven by growing fears of global economic disruption and potential retaliatory trade measures.
All Analysts Predict Softer Policy Stance by MAS
According to a Bloomberg survey completed midweek, all 14 participating economists agree that the MAS is likely to reduce the slope of the policy band for the Singapore dollar’s nominal effective exchange rate (S$NEER). Unlike many central banks that use interest rates as a primary tool, Singapore’s central bank relies on the exchange rate to maintain price stability. A reduction in the policy slope would effectively loosen monetary conditions to support economic growth.
Singapore Dollar Holds Ground Despite Global Currency Volatility
Although the U.S. dollar initially strengthened after the 2024 U.S. presidential election, its dominance has waned in recent weeks. Investors are turning away from American assets due to the surprise tariff hikes, which have cast uncertainty over trade relations. Meanwhile, Singapore’s dollar has appreciated by approximately 2.9% against the greenback since the beginning of the year, showcasing resilience amid the volatility.
Inflation Concerns Take a Backseat to Growth Needs
Khoon Goh, head of Asia research at ANZ, highlighted the weakening global landscape and its implications for Singapore. With core inflation projected to remain well below long-term averages, the central bank is shifting its attention toward supporting growth. Goh anticipates a neutral policy slope, effectively signaling a pause in currency appreciation to aid the domestic economy.
Trade Reliance Makes Singapore Vulnerable to Tariff Fallout
Despite being subject to a comparatively moderate 10% tariff, Singapore’s economy remains highly exposed due to its export-oriented structure. In contrast, China has been hit with a staggering 145% tariff. Singaporean Prime Minister Lawrence Wong has already warned that the country’s economic performance could suffer significantly this year, with the possibility of entering a recession looming large.
Economists Eye Bolder Easing Measures by Central Bank
Some financial institutions, including Citigroup, are anticipating the possibility of a more forceful response by the MAS. While Citi maintains its baseline forecast of a 50 basis-point slope reduction, it acknowledges a growing probability of a steeper move. Barclays also recognizes a small chance of the MAS both lowering the slope and re-centering the policy band downward, which would facilitate further depreciation of the currency.
Muted Inflation and Trade Turmoil Reinforce the Case for Easing
Bloomberg economist Tamara Mast Henderson emphasized the benign inflation environment and the dampening impact of global trade uncertainty. The introduction of higher tariffs by the U.S. has already begun disrupting trade flows and rattling financial markets, making the case for policy easing even stronger. UBS AG echoed this sentiment, forecasting the largest tariff-related economic drag for Thailand and Singapore in the region.
Strategic Caution Likely as MAS Balances Market Expectations
Singapore’s central bank last eased policy in January for the first time in five years. Now, in light of worsening external conditions, the need for supportive measures has intensified. However, analysts like Selena Ling from OCBC Bank caution against abrupt action. She noted that while a reduction to a 0% slope is possible, MAS may prefer a gradual approach to avoid unsettling the market, especially with persistent global trade uncertainties at play.
Singapore’s upcoming policy decision is set to mark a crucial step in its effort to shield the economy from the shocks of escalating international trade conflicts. All eyes will be on MAS as it balances currency strategy with broader economic stability.