Economists split on Singapore monetary policy amid Trump 2.0 uncertainties
2025.01.21 01:54
By Xinghui Kok
SINGAPORE (Reuters) – Economists are split on whether Singapore’s central bank will loosen monetary policy this week or leave its settings unchanged to wait to see what policies U.S. President Donald Trump introduces in his second term.
Reuters polled 12 analysts and six expect the Monetary Authority of Singapore to loosen its currency-based monetary policy at a scheduled review on Friday to reflect an easing in inflation and stronger-than-expected economic growth in 2024.
The other six expected no change in the policy settings.
The MAS has not changed policy since a tightening in October 2022, which was the fifth in a row, as broader concerns about growth kept authorities sidelined.
It last eased policy in March 2020 as Singapore braced for a recession as COVID-19 was spreading worldwide.
MAS “may want to assess the implications of policies from the Trump administration, which may only become clear in the second quarter”, said Jonathan Koh, Asia economist at Standard Chartered bank (LON:), who expects the institution to stand pat this week.
Lee Yen Nee, a risk analyst at Fitch Solutions unit BMI, said Singapore’s economy gives MAS the space to wait and assess the global environment more thoroughly.
Central banks globally are leaning towards gradual and cautious cuts in monetary policy.
The Federal Reserve in December lowered rates but a Reuters poll expects a hold on policy this month as Trump’s policies stir inflation worries.
The European Central Bank has said further reductions are likely but a cautious approach was warranted because of prevailing uncertainties.
Instead of using interest rates, Singapore manages monetary policy by letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band, known as the Singapore dollar nominal effective exchange rate, or S$NEER.
It adjusts policy via three levers: the slope, mid-point and width of the policy band.
Maybank economist Chua Hak Bin sees room for the central bank to ease policy “given the more benign inflation outlook”, forecasting a gentler appreciation in the slope of the S$NEER band.
Chua expects core and headline inflation, now both below 2% after cooling from a peak of 5.5% in early 2023, to fall further in early 2025.
The central bank expects core and headline inflation to be at 1.5% to 2.5% for the year.
Bank of America analysts expect the MAS to leave policy unchanged, but with a dovish steer, before easing at the next scheduled review in April.
The MAS last year started making policy announcements every quarter instead of semi-annually.
“By the April meeting, there would be greater clarity on cost pass-through from usual start-of-year price adjustments, and the impact of Singapore’s budget,” the analysts wrote.
Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.
Growth surprised on the upside in 2024 at 4% in advance estimates after slowing to 1.1% in 2023 from 3.8% in 2022.
The trade ministry’s GDP growth forecast for 2025 is 1.0% to 3.0%.
