Economists mixed on MAS October policy decision after central bank stands pat in July

[SINGAPORE] Private-sector economists are divided on how the Monetary Authority of Singapore (MAS) will move on monetary policy in October, after it decided to keep settings unchanged in July – which in itself had come as a surprise to some economists.

The Republic’s central bank at Wednesday’s (Jul 30) quarterly policy meeting chose to maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to its width and the level at which it is centred.

This came after easing in January and April, when MAS reduced the policy slope slightly. Noting these two moves, the central bank said that it is now “in an appropriate position to respond to risks to medium-term price stability”.

Since the April review, the S$NEER has strengthened towards the top of the policy band amid broad-based depreciation in the US dollar, it said.

It assessed that global growth has been more resilient than expected, with manufacturing and trade remaining steady due to “front-loading of orders and continued (artificial intelligence)-related investments”. 

While it believes that growth momentum will moderate over the year on dissipating front-loading activity, intensifying policy uncertainty and the implementation of previously delayed tariffs, MAS also noted that the risk of a sharp step-down in global growth in the near term has receded.

Private-sector economists’ expectations of the July move had been split: in a Bloomberg poll, 14 of 19 economists thought settings would be unchanged; in The Wall Street Journal’s, nine out of 16 did; and in Reuters’, six of 12 did. The remaining respondents of each poll predicted easing.

Economists seem similarly mixed when it comes to the final monetary policy decision for 2025 in October, with some expecting MAS to stick to the status quo, and others forecasting a reduction of the S$NEER slope.

Holding up well

Maybank analysts Chua Hak Bin and Brian Lee believe that there will be no further easing in 2025, “as the Singapore economy has held up well despite the tariff and geopolitical shocks”.

They forecast gross domestic product growth to reach 3.2 per cent for the full year, and expect the Ministry of Trade and Industry to upgrade its official forecast range to between 2 and 3 per cent, from the current zero to 2 per cent.

“Easier monetary conditions, the roll out of fiscal support and a construction boom will cushion the shock from US reciprocal tariffs in the second half,” the duo said.

Private banking group LGT said its expectations of the US dollar to Singapore dollar rate, which lean towards a weaker US dollar environment, “factored in no change in MAS policy for the rest of the year”.

Trang Le, foreign exchange (FX) and rates specialist at LGT Private Banking Asia Pacific, noted that the tone of MAS’ statement was “neutral rather than dovish”, while a team of four Bank of America (BOA) economists and strategists said it was “surprisingly less dovish at first glance”.

Both LGT and BOA noted that MAS seems to be adopting a “wait-and-see” approach.

Asia economist Derrick Kam at Morgan Stanley Asia said that despite the reduced risks of a sharp slowdown, “the outlook remains subject to huge uncertainty, and may yet portend further easing moves”.

But its base case is for MAS to stay on hold in October, with risks skewed to further easing.

An alternative scenario of a move to a zero per cent stance could be triggered, “if growth surprises to the downside, and particularly more so if it triggers further disinflationary pressures and weighs on medium-term inflation”, he said.

Slowing growth, subdued inflation?

OCBC chief economist Selena Ling noted that there is “no urgency to ease just yet”, with near-term inflationary pressures staying contained.

“MAS noted that there is two-way risk for the inflation trajectory,” she said.

Any US tariffs on China will likely mean cheaper Chinese exports for the rest of the world, but ongoing geopolitical tensions and global supply chain shifts could still push up energy and shipping costs. 

“The window for further easing is still open for the next scheduled October monetary policy review,” Ling added.

She believes that easing may happen then or in January 2026, depending on whether a further downside core inflation trajectory materialises.

Similarly, DBS senior FX strategist Philip Wee and senior economist Chua Han Teng “see the door open for a third reduction in the band’s slope in October”.

They saw the January and April easing moves as “an unwinding of the restrictive policy settings put in place between 2021 and 2024”.

Despite its resilience in the first half, the Singapore economy is expected to “align with the tariff-induced slowdown in the global economy and external demand” in H2, keeping inflation subdued, they said.

Wee and Chua added that the S$NEER should consequently decline towards the midpoint of the policy band over the three months to the October review.

SMBC Asia-Pacific’s head of Asia macro strategy Jeff Ng sees “a 60 per cent chance” of easing in October.

“This will occur if economic growth slows and the inflation outlook for 2026 is subdued,” he said, noting MAS’ expectation for growth momentum to moderate from H1’s “strong pace”.

On the flip side, Ng believes that MAS may hold if global and domestic growth stays resilient, and inflationary pressures “linger at around the 1 per cent year-on-year mark”.

BOA’s team believes that the policy decision in the July meeting was “close, with MAS perhaps keeping the door open for a three-step easing at the next two policy meetings”.

It expects MAS to flatten the policy band’s slope in October, nudged by soft core inflation prints in the coming months.

BOA’s forecasts point to core inflation being “stable and subdued” at around 0.6 per cent on the year in the third quarter, the team said, adding that it thinks MAS will downgrade its official 2025 forecast in October to the “lower half” of the current 0.5 to 1.5 per cent prediction.