Economists expect unchanged monetary policy in July, after inflation rises but stays under forecast

[SINGAPORE] Private-sector economists still expect the Monetary Authority of Singapore (MAS) to stand pat at its July monetary policy meeting, after core and headline inflation rose in June but undershot forecasts.

Core inflation, which excludes accommodation and private transport, picked up to 1.6 per cent in June, from May’s 1.4 per cent, data from MAS and the Ministry of Trade and Industry (MTI) showed on Thursday (Jul 23).

It was lower than the median 1.7 per cent predicted in Bloomberg’s poll of private sector economists.

Headline inflation accelerated to 1.9 per cent in June, from the preceding month’s 1.8 per cent – but under the Bloomberg poll median economists’ estimate of 2 per cent.

At the last meeting in April 2026, MAS increased slightly the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, while keeping its width and centre unchanged. This was the first tightening since October 2022.

Eyes on electricity

Inflation rose across the food, retail and other goods, services, and accommodation categories, while private transport inflation eased due to slower petrol price increases amid a pullback in global oil prices.

Electricity and gas prices continued to decline. But several watchers said eyes will be on electricity and gas prices going forward.

“They will face meaningful upward pressures in the coming months,” said DBS senior economist Chua Han Teng. Electricity tariffs were raised on Jul 1.

Still, Brian Tan, head of non-China EM Asia economics research at Barclays, noted that MAS maintained its 1.5 to 2.5 per cent core inflation forecast range.

This suggests the central bank does not yet believe the electricity tariff hike will exert “significantly more powerful” core inflation pressures.

HSBC senior Asean economist Yun Liu said that the British bank has factored in the lagged hike into its forecasts, and does not believe “it will trigger the core inflation to rise to an uncomfortable extent”.

She does not expect back-to-back tightening. Rising inflation pressure and strong gross domestic product growth may increasingly point to a need for an immediate tightening in July, but HSBC’s base case is for tightening in October.

Singapore’s second-quarter GDP delivered an upside surprise, but was “quite an uneven picture”, mainly driven by the artificial intelligence-fuelled manufacturing boom, Liu said.

But the sector manufacturing is notably capital-intensive and only contributes to around 2 per cent of the overall job market, the economist noted, adding that she does not expect the strong GDP prints to automatically translate into high core inflation pressures.

Standard Chartered’s Edward Lee, chief economist and head of FX, Asean and South Asia, and Jonathan Koh, senior economist and FX analyst, Asean, also expect MAS to be closely monitoring the durability of AI-demand growth and its spillovers.

The authorities’ outlook was largely similar to the previous month, with the only change being an omitted mention of recent easing in global energy prices – which Stanchart’s duo said is “just factual”.

They noted renewed upside risks to imported inflation, as escalating disruptions in the Strait of Hormuz and Red Sea have raised energy and freight costs.

The pair added: “Nonetheless, softer wage growth and still-benign inflation breadth suggest domestic inflation pressures remain broadly contained.”

They expect the central bank to leave policy unchanged while maintaining a tightening bias.

DBS’ Chua said that the central bank is “likely to leave the door open” for tightening, amid upside global energy price volatility and evolving geopolitics.

Despite the city-state’s diversified food import sources, authorities will also be monitoring “weather-related supply disruptions associated with El Nino” and the resulting upside risk to food inflation, he added.

Still, current policy settings “are in a good position to address rising inflation”, following April’s move, he explained, adding that Singapore’s inflation remained low relative to the official forecast range.

Barclays’ Tan thinks there is a significant risk that MAS will raise the policy slope by 50 basis points, earlier than its October base case.

“Even if MAS stands pat on Jul 27 as per our base case, the tone of the upcoming monetary policy statement is likely to sound relatively hawkish, in our view,” he said. “In particular, we believe MAS is more focused now on the outlook for economic growth, which seems firmer as the AI boom continues – implying the potential for more visible demand-pull inflation pressures further out.”

MAS is therefore likely to wait for greater clarity, with April’s tightening still working through the economy, before reacting to external price shocks.