Dec 20 2024: Slowing inflation in Singapore has created room for monetary policy easing, but analysts believe the Monetary Authority of Singapore (MAS) may delay any changes until later in 2025 to better evaluate the policies of incoming U.S. President Donald Trump.
A Reuters poll indicates that November’s inflation data, expected next Monday, will likely show the core rate steady at October’s three-year low of 2.1%. This figure aligns with MAS’s projection of core inflation hovering around 2% in the fourth quarter.
Analysts at DBS Bank expect core inflation to remain at 2.1% in November and average 1.8% for 2025. However, they see little chance of the MAS easing policy during its January review. DBS economist Chua Han Teng noted that the MAS is likely to wait for clarity on Trump’s policies post-inauguration before making any significant adjustments.
Singapore’s monetary policy differs from traditional interest rate mechanisms, as it is managed through the Singapore dollar nominal effective exchange rate (S$NEER). The MAS can adjust policy via the slope, midpoint, or width of the S$NEER band to influence the currency’s movement against those of its major trading partners.
While a recent MAS survey showed a decrease in economists predicting a January easing—from half to about one-third—some, like Maybank economist Chua Hak Bin, remain convinced. He anticipates the MAS will reduce the S$NEER slope in January, citing expectations of inflation falling below 2% and growth moderating to 2.6% in 2025 from 3.6% in 2024.
Chua also warned that disruptions to global trade and excess production capacity in China diverted by Trump’s tariff policies could trigger a deflationary shock, reducing import prices for Singapore.
Other analysts, such as Eugene Tan from Moody’s Analytics, believe the MAS will likely wait for core inflation to remain below 2% for several months before easing. This approach would also allow time to gauge the impact of Trump’s trade strategies on the global economy and Singapore’s growth trajectory.
While inflation moderation has raised the possibility of policy easing, the MAS appears poised to tread cautiously, prioritizing a thorough assessment of both domestic and international economic conditions.
