Economists split on likelihood of third monetary policy easing in 2025 as Trump tariffs loom

[SINGAPORE] Economists are split on whether the Republic’s central bank will further ease monetary policy in July, after having made two consecutive slight slope reductions in January and April 2025.

In a widely expected move, the Monetary Authority of Singapore (MAS) on Monday (Apr 14) said the rate of appreciation will be reduced slightly for the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to the width of the band or the level at which it is centred. MAS continues with the policy of a modest and gradual appreciation, it said.

Private-sector economists estimated that the slope of the band was reduced by 50 basis points to 0.5 per cent. Some argued that this leaves room to further reduce the slope this year, but others expect MAS to hold it steady.

The latest move follows the US imposed import duties on most countries in the world, and some countries have announced retaliatory tariffs. These moves have dimmed prospects for global trade and gross domestic product growth, which will in turn dampen growth in trade-dependent Singapore, MAS said.

The central bank is assuming a negative output gap for 2025. It also flagged lower-than-expected inflation out turns in January to February, and an anticipated moderation in the pace of price increases amid the weakening economic outlook. 

Singapore’s GDP growth forecast for 2025 has been lowered to between 0 and 2 per cent, from between 1 and 3 per cent previously. The official forecasts for both core and headline inflation have been downgraded to 0.5 to 1.5 per cent. The previous projections were 1 to 2 per cent for core inflation, and 1.5 to 2.5 per cent for headline inflation.

Down to zero?

Following Monday’s loosening, some economists are expecting another move to completely flatten the S$NEER slope in July.

The tone of MAS’ monetary policy statement (MPS) “reflected significant concerns” over tariff developments since Trump’s “Liberation Day”, UOB associate economist Jester Koh said, also noting the adjusted forecasts.

He believes thresholds for an adjustment to a 0 per cent appreciation stance have likely already been met.

In April 2016 – when MAS set the rate of appreciation of the S$NEER policy band at 0 per cent – the central bank assessed that core inflation would likely reach the “lower half of the 0.5 to 1.5 per cent forecast range”, with the level of activity “slightly below potential”, Koh noted. MAS’ outlook in the latest review is “similar, if not more negative”.

He also said a complete slope flattening is now “not a matter of if, but when”, and anticipates such a move in July’s MPS.

Barclays economists Brian Tan, Liu Hongying and Audrey Ong also said that another 50 basis point slope reduction, to zero, “seems likely in July”.

“Much of the official GDP forecast downgrade appears to be backward-looking, incorporating mainly the Q1 GDP downside surprise – and not necessarily significant future tariff-related weakness,” the team said. Its view is that policymakers “are likely still too hopeful” in their GDP growth projections, and could be surprised as early as the Q2 GDP advanced estimate.

It has lowered its own growth forecast to 0.2 per cent, from 1.7 per cent before.

“There has historically been a close relationship between the MAS’ slope setting and its output gap projections,” the Barclays trio said. Given the official projection of a negative output gap, an eventual shift to a zero slope seems likely, they said.

Beyond flattening the slope, UOB and Barclays economists also noted potential adjustments to the mid-point of the S$NEER, though this is not their base case.

Koh believes that should further downgrades to the full-year core inflation or growth forecasts be warranted, a downward recentring later this year could be possible.

This move remains a risk in H2, agreed the Barclays team, who added: “Even if we get there, we suspect any downward recentring would also likely be relatively measured – possibly only 50 to 100 basis points.”

Meanwhile, HSBC economists Yun Liu and Joey Chew said that despite the MPS’ “unequivocally dovish tone”, policy action was moderate.

The door for future easing likely remains open, they said, adding that the market may continue to expect further policy easing, “but that is unlikely going to be a focus until the July policy decision draws nearer”.

Or time for a break?

Others believe MAS is likely to pause for now.

Standard Chartered chief economist Edward Lee and economist Jonathan Koh think that MAS “has adopted a wait-and-see stance, with the risk slanted towards further measured easing, if needed”.

“The ongoing trade negotiations during the 90-day pause on reciprocal tariffs may provide some light on July’s policy meeting,” they added.

RHB’s group chief economist Barnabas Gan and associate research analyst Laalitha Raveenthar said: “We anticipate MAS will likely keep its policy parameters unchanged this year, with the balance of risk to further ease in H2 2025.”

Similarly, while Maybank analysts Chua Hak Bin and Brian Lee “cannot rule out a shift to a neutral bias” in H2 should the trade war intensify and cause a deep technical recession, the bank’s base case is for no further MAS easing this year. They are currently pencilling in a growth slowdown, but not a recession.

Economists agreed that on top of monetary easing, Singapore can lean on other measures such as fiscal support.

The Maybank duo also highlighted the government’s “ample dry powder to quickly roll out more fiscal stimulus” if the global economy rapidly deteriorates.

OCBC’s chief economist Selena Ling said monetary policy “will only complement the fiscal policy accommodation that is likely to follow”, pointing to a task force being formed to help businesses and workers deal with the fallout from the tariffs.

“More fiscal support, possibly in the form of an off-budget package, could be forthcoming later this year if economic conditions continue to soften from here,” she said, acknowledging the MPS’ dovish tone and the room for a further monetary policy easing “if economic conditions deteriorate further”.

The bank trimmed its 2025 headline and core inflation forecasts to 1.2 per cent, from 1.5 per cent previously.