No rush for MAS to ease monetary policy early in 2025, as uncertainty over Trump lingers

AFTER more than two years of holding steady, Singapore’s central bank is expected to start easing monetary policy in 2025. The question is when exactly.

Core inflation is officially expected to cool to under 2 per cent – the level that the Monetary Authority of Singapore (MAS) sees as consistent with price stability – by end-2024. In October, it fell to 2.1 per cent, the lowest since 2021.

But most economists expect policy to ease from April at the earliest, as the MAS waits to see what incoming US President Donald Trump does.

MAS last changed policy settings in October 2022, re-centring the midpoint of the Singapore dollar nominal effective exchange rate (S$NEER) policy band upwards. This was the last of five consecutive tightening moves that began a year before.

With inflation having come down from pandemic-induced highs, the central bank has since kept policy settings unchanged.

Economists expect both core and headline inflation to cool further in 2025, as property and vehicle prices stabilise; wage growth cools with less labour market tightness; and more healthcare subsidies are provided.

Inflationary effects from the goods and services tax hike at the start of 2024 should also fade out.

Holding back

A check of nine economists’ forecasts showed that their full-year core inflation estimates for 2025 range from 1.5 to 1.9 per cent.

This is at the lower end of MAS’s forecast range of 1.5 to 2.5 per cent.

Some expect core inflation to fall below 2 per cent as early as December, or the first quarter of 2025.

Yet in the latest MAS survey of professional forecasters released on Dec 11, only a third of respondents expected MAS to ease policy in January.

Maybank analyst Chua Hak Bin and UOB associate economist Jester Koh both expect a reduction of the S$NEER slope in January, with no further changes for the rest of 2025.

Chua expects both core and headline inflation to fall “comfortably below” 2 per cent in early 2025, paving the way for this move. Koh expects a “slight” reduction of 50 basis points to the S$NEER slope.

Barclays regional economist Brian Tan also expects core inflation to fall below 2 per cent in December, and a 50 basis points slope reduction in January.  (* see amendment note below)

But most economists expect easing to take place in April instead.

One reason to wait is Singapore’s surprisingly strong third-quarter gross domestic product growth.

Bank of America economists Ang Kai Wei and Rahul Bajoria noted that the authorities had upgraded their full-year GDP growth forecast in November. MAS’ baseline view – and thus its inclination to ease or not – is unlikely to change “too materially” by January, they said.

As growth is likely to remain elevated in Q4, MAS might “hold back on easing prematurely to prevent the economy from overheating”, said Sheana Yue, an economist at Oxford Economics.

She does not expect an MAS move in January, even as her forecast is for core inflation to hit 1.95 per cent in December, and decline further to 1.5 per cent in January.

The Trump effect

In January itself, however, Trump’s threatened tariffs could prompt change: whether by worsening the growth outlook and thus necessitating an earlier easing, or creating inflationary pressures that require policy to be kept tight.

In a report dated Nov 12, Barclay’s Tan said that if Trump goes ahead with tariffs soon after taking office on Jan 20, the MAS might pre-emptively ease in January by lowering the S$NEER slope, as growth risks would be “significantly to the downside”.  (* see amendment note below)

In contrast, OCBC chief economist Selena Ling flags that Trump’s tariffs and other policies “unsettle the disinflation trajectory”. The MAS will have to be vigilant against imported inflation, she said.

“We may get a clearer core inflation picture and Trump’s policy materialisation from Q2 2025 onwards, so an easing – possibly through a flatter S$NEER slope – is possible (then),” she added.

Similarly, DBS Group research analysts Chua Han Teng, Philip Wee and Eugene Leow believe MAS “will want to mirror” the US Federal Reserve and European Central Bank in basing policy decisions on any actual tariffs, rather than “speculating on potential changes”.

Therefore, MAS will prefer to ease after its meeting in January – in other words, not in January itself – unless core inflation “declines quickly” below the 2025 forecast range, they said.

The Bank of America economists believe January’s meeting may “be too close” for MAS to factor Trump’s new measures into baseline projections. They expect inflation to fall below 2 per cent during the first quarter, but MAS to ease only from April.

Eugene Tan, associate economist at Moody’s Analytics, said his baseline expectation is for the Fed to continue trimming interest rates in 2025. This will lead the global easing cycle, and make it more probable that MAS eases too.

In easing, MAS is likely to take a “gradual and measured” approach as inflation could resurge, he added. If “domestic conditions shift unexpectedly” amid global economic uncertainty, the MAS could recalibrate.

For instance, a trade war between the US and China could reignite global inflation, causing countries to keep interest rate policy tight, he said. MAS could then slow its easing – or return to tightening – to maintain the strength of the Singapore dollar.

Apart from reducing the S$NEER slope in January, Barclays’ Tan expects the MAS to re-centre the policy band downwards – implying that it sees a fundamental worsening of the economic outlook.  (* see amendment note below)

His base case is a downward re-centring of 75 to 150 basis points in January as well.  (* see amendment note below)

While MAS did not re-centre the band during Trump’s first presidential term, “the bar for doing so this time is lower than usual”, said Tan.

The central bank would be aiming mainly to correct the “excess restrictiveness” resulting from its previous upward re-centring in October 2022.

“Now that Trump is indeed the US president-elect, the likelihood of a significant escalation in global trade tensions would tend to aid the MAS in arguing that the economy indeed faces a looming negative economic growth shock – and such shocks have historically justified downward re-centrings.”

Closer to home

As for domestic factors, Oxford Economics’ Yue does not expect Budget 2025 to have a material impact on MAS’ policy decision.

“We are not expecting Budget 2025 to overstimulate the economy, nor do we foresee any significant tax rises such as the GST hikes in the last two years, which would impact price levels,” she said.

But with Singapore’s general election due by November 2025, it might be challenging to ease monetary policy “when there is still significant political focus on inflation”, said Barclays’ Tan.

There is thus a risk of MAS delaying its move, he said – though if core inflation comes below 2 per cent, that may be “an enabling factor for easing in terms of the messaging to the public”.

* Amendment note: The story incorrectly stated that Barclays’ Tan’s base case was for an April move at the earliest, as it had referenced an outdated report. Tan’s latest base case is for both a slope change and a recentring in January.