Economists expect MAS to tighten monetary policy in April or July, after keeping settings unchanged in January

[SINGAPORE] Economists expect the Monetary Authority of Singapore (MAS) to tighten monetary policy in April or July after keeping settings unchanged in January, amid a more optimistic growth outlook and higher inflation projections.

Though most expect a move in its April meeting, the central bank could also wait until July to act, they said.

At its quarterly policy meeting on Thursday (Jan 29), MAS 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.

“MAS is in an appropriate position to respond effectively to any risk to medium-term price stability, and will continue to closely monitor economic developments amid uncertainties in the external environment,” said the central bank.

It had similarly kept monetary policy settings unchanged in July and October 2025. This followed two consecutive easings in January and April, with the slope of the policy band reduced slightly.

Despite maintaining its policy stance, MAS on Thursday raised its core and headline inflation forecasts to the range of 1 to 2 per cent, up from its earlier range of 0.5 to 1.5 per cent.

Said DBS senior economist Chua Han Teng: “The revision reflected the higher-than-expected inflation in Q4 2025, which was congruent to the stronger-than-expected growth outcome.”

Since the October meeting, the S$NEER has strengthened in the upper half of the appreciating policy band, said MAS.

It expects gross domestic product growth in 2026 to “remain resilient” following Singapore’s strong performance in 2025, with a positive output gap for the full year.

Singapore’s gross domestic product is expected to grow 4.8 per cent in 2025, with fourth-quarter GDP growth to come in at 5.7 per cent, based on advance estimates released earlier in January. This exceeds the official full-year growth forecast of “around 4 per cent.”

While MAS sees global growth easing “modestly” as the lagged effects of higher tariffs weigh on demand and trade, it noted that the extent of global economic moderation could be mitigated by supportive fiscal and monetary policies, alongside the sustained global artificial intelligence (AI) capital expenditure upcycle in the near term.

The central bank said on Thursday that it expects core inflation to “increase modestly” in the near term, reflecting a pickup in the growth of services unit labour costs from its subdued pace in 2025.

At the same time, a sustained rise in services productivity could dampen the extent of cost increases, while imported inflation should stay contained.

Global oil and food commodity prices are also expected to decline at a progressively slower pace over 2026, it added, while regional consumer price inflation will edge up.

On average, MAS projects core inflation momentum “to come in at a pace that is slightly below trend” over 2026. Headline inflation will also reflect subdued accommodation costs, stemming from the impact of last year’s weaker housing rental growth.

Singapore’s 2025 full-year core inflation averaged 0.7 per cent, slightly above the official forecast of 0.5 per cent, data from the Department of Statistics Singapore showed on Jan 23.

Full-year headline inflation came in at 0.9 per cent, falling within the official forecast range of 0.5 to 1 per cent. This was as December’s core and headline inflation both held steady at 1.2 per cent.

Thursday’s announcement was in line with economists’ expectations. In a Reuters poll, 15 of 16 economists believed settings would be unchanged. Similarly, 11 of 12 polled by The Wall Street Journal thought MAS would keep its settings.

Hawkish tilt

Several economists pointed to the central bank’s hawkish tone and its more optimistic assessment of economic growth in its January statement.

HSBC analyst Yun Liu attributed MAS’ shift in tone – from a neutral stance in October – to a more upbeat growth outlook.

For instance, she pointed out that MAS now expects the output gap to remain “positive” for 2026, compared with “around zero per cent” in its October statement. It had also added a new sentence highlighting upside risks to the growth and inflation outlook.

“With core inflation momentum building up quickly, we believe July would be a little too late for the MAS to move, thus April is a more appropriate timing,” she said.

Similarly, UOB associate economist Jester Koh said that though MAS’ statement on growth prospects was “broadly hawkish”, it was balanced by “somewhat dovish” elements on inflation.

Noting MAS’ assessment of the output gap to remain positive this year and for underlying price pressures to return closer to trend, he said the tone of the statement “sets the stage” for policy normalisation in April.

Thus, he expects the central bank to steepen the slope by 50 basis points to take it to 1 per cent per annum – a move he sees as likely a “one-off adjustment” to align the S$NEER closer to equilibrium levels.

There is also a possibility that MAS will delay policy tightening to July, though this is less likely, he added.

Maybank economists Chua Hak Bin and Brian Lee said they were positive on the growth outlook and see “simmering” inflation pressures emerging.

The positive output gap will likely widen in the first half of 2026, they added, with the growth momentum from the AI boom carrying over from 2025.

They thus expect MAS to tighten policy at its April or July meeting, by steepening the appreciation bias “slightly”.

Meanwhile, Standard Chartered’s chief economist and head of foreign exchange for Asean and South Asia Edward Lee noted that ongoing high uncertainties may have held MAS back from tightening in January “despite perceived signals”. He likewise expects the central bank to make a move in April.

The case to wait

In contrast, Barclays economist Brian Tan maintained his base case for the central bank to tighten policy in July. He expects the slope to be steepened by 50 basis points to 1 per cent.

Though he flagged the risk of an earlier move in April, he believes tightening will happen “later rather than sooner”.

He said MAS has held off from pre-emptively tightening monetary policy due to the downside risks around the AI boom, as it remains cautious that recent upside surprises in Singapore’s growth may not sustain and “could reverse sharply”.

The central bank will need to get “more comfortable” around the sustainability of the AI boom – in that it will not culminate in a significant market correction – before proceeding with tightening, he added.

There is also no urgency for MAS to make a move from a demand-pull inflation perspective, he said.

As he sees it, MAS will only trigger an immediate monetary policy tightening “if it was for the right reasons”, noting that the central bank had held steady on policy settings despite raising its inflation forecasts.

“MAS tends to be more concerned about core inflation when it is signalling high demand-pull pressures, rather than when its level is merely high,” he explained.

As for Chua, he does not expect policy tightening in April unless core inflation rises above 2 per cent.

OCBC chief economist Selena Ling noted that while each quarter policy review is “live”, she believes there is “no hurry” or MAS to make a move.

This is because April’s review will only give Q1 2026 economic cues “which may be too premature” to assess the sustainability of the core inflation trajectory – given seasonal effects from Chinese New Year – and that of the ongoing-AI driven manufacturing surge, she explained.

Ling added that domestic labour market conditions would be key to watch, particularly the firming of wage growth which would support domestic confidence and private consumption.

Should tightening of monetary policy materialise later this year, potentially through a “slight” steepening of the S$NEER slope, “this should be interpreted as a ‘normalisation’ in line with resilient macro-economic fundamentals”, she said.

Economists had also expected MAS to raise its 2026 inflation forecasts, with their own projections falling within the revised official range of 1 to 2 per cent.

Landing in the middle are Barclays and UOB, which forecast core inflation at 1.5 per cent.

At the upper end, HSBC expects core inflation at 1.8 per cent and DBS 1.6 per cent, while Maybank and OCBC sit at the lower end with 1.3 per cent.