MAS eases policy slightly, lowers inflation forecasts after Trump tariffs threaten growth
This follows January’s loosening, which was the first since 2020
[SINGAPORE] The Republic’s central bank eased monetary policy settings slightly at its quarterly review on Monday (Apr 14), in a widely expected move after US tariffs raised recession fears, while also lowering its full-year inflation forecasts.
The Monetary Authority of Singapore (MAS) said the rate of appreciation will be reduced slightly for the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to the width of the band or the level at which it is centred.
This is as it continues with the policy of a modest and gradual appreciation, the central bank said.
The move was in line with market expectations, after US President Donald Trump announced a baseline 10 per cent import duty on all countries, and more extensive tariffs for the “worst offenders”.
“Prospects for global trade and gross domestic product growth dimmed in early April,” MAS said in the latest monetary policy statement.
On Monday morning, the Ministry of Trade and Industry downgraded Singapore’s GDP growth forecast for 2025 to between 0 and 2 per cent, from between 1 and 3 per cent previously.
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As Singapore is highly dependent on trade and deeply integrated with global supply chains, slowing global and regional trade could drag down its external-facing sectors, said MAS. This could spill over into domestic-oriented sectors.
“Consequently, the aggregate level of output will come in below the economy’s potential this year.”
With the output gap turning negative, Singapore’s imported and domestic cost pressures will remain low, MAS said, adding that risks to inflation are tilted towards the downside.
On Monday, MAS lowered its official full-year forecast ranges for Singapore’s inflation. It now expects core inflation to come in between 0.5 and 1.5 per cent, down from 1 to 2 per cent previously. Headline inflation is now similarly expected to average between 0.5 and 1.5 per cent, down from 1.5 to 2.5 per cent before.
Prime Minister Lawrence Wong warned on Apr 8 that the country may or may not face a recession this year, with economic growth “significantly impacted” by the US tariffs.
In a Bloomberg survey, all 14 economists forecast that MAS would reduce the S$NEER slope in April. Meanwhile, nine out of 10 analysts polled by Reuters expected this move.
Economists believe the S$NEER slope was reduced by 50 basis points to an estimated 0.5 per cent per annum, and that there is room for further easing.
A complete slope flattening this year is “not a matter of if but of when”, said UOB associate economist Jester Koh, adding that the bank anticipates this move in July’s review.
While this is not their base case, a downward recentring is also possible later this year, he added, “should the data clearly warrant a further downgrade in either the 2025 full-year core inflation or growth forecast”.
Noting the references to the output gap turning negative and the downside inflation risks, OCBC chief economist Selena Ling said MAS rhetoric is “clearly dovish”.
“The reciprocal tariffs are likely deflationary for the Singapore economy as China diverts exports to the rest of the world, including Asean, and the dampening effects on business and consumer demand are likely to play out in the coming months.”
The bank also trimmed its 2025 headline and core inflation forecasts, to 1.2 per cent year on year, from 1.5 per cent.
This is considering the escalating US-China trade war, the widening financial market volatility and economic implications on trade and growth prospects of major trading partners.
Maybank analysts Chua Hak Bin and Brian Lee said they “cannot rule out a shift to a neutral bias” in the second half of 2025, if a deep technical recession occurs due to an intensified trade war. But this is not its base case.
The government has “ample dry powder to quickly roll out more fiscal stimulus”, should the global economy deteriorate rapidly, they added.
The latest loosening follows a previous round of easing in January, when MAS also reduced the slope slightly. Prior to that meeting, the central bank stood pat for more than two years, last tightening policy in October 2022.
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