Singapore Central Bank Eases Policy for First Time in Nearly Five Years, Flags Risks Abroad — Update
By Ronnie Harui
Singapore's central bank eased its monetary policy for the first time in nearly five years, making the change as it forecast slower growth and contained inflation at home amid rising uncertainty from trade frictions abroad.
The central bank said Friday that it will slightly reduce the slope of the Singapore dollar nominal effective exchange rate policy band, a move consistent with a modest and gradual appreciation path of the band that will ensure medium-term price stability. There will be no change to the width or the level at which the policy band is centered, the Monetary Authority of Singapore said.
The central bank struck a cautious tone about the outlook for the global economy in the year ahead, noting a rise in policy uncertainty fueled by expectations of increased trade frictions.
The Singapore dollar weakened slightly against its U.S. counterpart immediately after the MAS's decision, but later recouped losses to trade stronger. The U.S. dollar was last 0.3% down at S$1.3507.
Unlike most central banks, the MAS uses the exchange rate as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.
Expectations on what the central bank would do were split heading into Friday's decision, with recent data showing a stellar year of growth in Singapore's economy alongside cooling inflation, but geopolitical risks and market volatility on the rise.
Half of the 20 economists and analysts surveyed by The Wall Street Journal had expected the move. The other half had anticipated that the central bank would leave policy unchanged.
Singapore's growth is projected to moderate over 2025, the MAS said, as shifts in global trade policies could weigh on manufacturing and trade-related services sectors. For now, the domestic economy is forecast to grow 1.0% to 3.0% this year, slower than the 4.0% recorded in 2024, the central bank said.
While an intensification of trade tensions could be inflationary for some economies, the impact on Singapore's import prices is likely to be countered by disinflationary drags from weaker global demand, the MAS said.
Core inflation, which strips out private road transport and accommodation costs, in the city-state is forecast to keep cooling, stepping down to 1.0% to 2.0% in 2025. That compares with the 1.5% to 2.5% projected in October.
MAS had last eased policy in March 2020 amid expectations that the economy would contract that year and consumer prices would average between minus 1% and 0% that year. With significant uncertainty over the depth and the duration of the city-state's recession in 2020, the MAS said at the time that core inflation would likely stay below its historical average in the near and medium term.
On Friday, the MAS stressed that the outlook for Singapore's growth and inflation trajectory remains "subject to uncertainties in the external environment."
Goldman Sachs economists interpreted the MAS's statement as cautious but not overly dovish. Barring any significant shocks, Singapore's central bank is expected to keep policy parameters unchanged throughout 2025, they added in a note.
However, Capital Economics sees room for the MAS to loosen policy again in April. The central bank appeared to declare victory in the battle against inflation, markets economist Shivaan Tandon said in a note.
The weakness of Singapore's economic growth also signals scope for the MAS to ease policy further during the rest of 2025, Tandon said. Gross domestic product growth sharply slowed in the fourth quarter of last year, and will probably stay below trend in the near term, he said.
"With inflation set to remain low, growth weak and the MAS appearing confident about the inflation outlook, we expect the central bank to loosen policy again in April," Tandon said.
Write to Ronnie Harui at ronnie.harui@wsj.com