MAS Eases Monetary Policy as Core Inflation Forecasts Drop to 1% to 2%

The Monetary Authority of Singapore (MAS) has announced a slight easing of its monetary policy, marking the first such move since 2020. The central bank cited a slowdown in economic growth momentum and faster-than-expected moderation in core inflation as the primary reasons for the adjustment. This article explores the implications of this decision and its potential impact on the Singapore economy.

The MAS has reduced the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band slightly, while keeping the width of the policy band and the level at which it is centered unchanged. This move aims to maintain medium-term price stability while supporting economic growth. The central bank expects core inflation to average 1.0% to 2.0% in 2025, down from the previous projection of 1.5% to 2.5%.



The reduction in the slope of the S$NEER policy band is expected to make the Singapore dollar more competitive internationally, potentially boosting exports and attracting foreign investment. However, it may also introduce some inflationary pressures and have varying impacts on different sectors. The MAS has indicated that core inflation is expected to remain low and stable, suggesting that this risk may be managed.

The MAS's projection of core inflation to average 1.0% to 2.0% in 2025 is likely to have a positive impact on consumer spending and business investment decisions in Singapore. Lower inflation rates mean that consumers' purchasing power increases, allowing them to allocate more funds towards discretionary spending. For businesses, lower inflation reduces input costs, making it more profitable to invest and expand operations. However, consumers and businesses may still be cautious due to lingering uncertainties, such as global economic conditions and geopolitical risks, which could temper the increase in consumer spending and business investment.

The key factors driving the slowdown in Singapore's economic growth momentum are the slower growth in the manufacturing and trade-related services sectors, moderation in core inflation, and global economic uncertainties. To address these challenges, the MAS has adjusted its monetary policy by slightly reducing the slope of the S$NEER policy band. This move aims to promote export competitiveness, encourage domestic demand, and manage inflation expectations.

In conclusion, the MAS's decision to ease monetary policy reflects the slowdown in economic growth momentum and faster-than-expected moderation in core inflation. The reduction in the slope of the S$NEER policy band is expected to make the Singapore dollar more competitive internationally, potentially boosting exports and attracting foreign investment. However, it may also introduce some inflationary pressures and have varying impacts on different sectors. The MAS's projection of core inflation to average 1.0% to 2.0% in 2025 is likely to have a positive impact on consumer spending and business investment decisions in Singapore, but the extent of this impact will depend on various factors, including consumer and business confidence, as well as global economic conditions.