Analysts split on MAS outlook after surprise 'very slight' July tightening

RHB sees S$NEER slope reaching 1.50% by year-end whilst UOB expects a hold at 1.25% into 2027.

Singapore's central bank delivered a surprise tightening at its July policy meeting, splitting analyst opinion on what comes next.

The Monetary Authority of Singapore (MAS) moved at its July policy meeting to increase the rate of appreciation of its Singapore dollar nominal effective exchange rate (S$NEER) policy band, though only "very slightly." The central bank pointed to stronger economic growth and an expected rise in imported inflation as the basis for the decision.

Before the latest MAS announcement, experts expected the central bank to keep its monetary policy stance unchanged at its July meeting, as the country's economic outlook continues to improve.

Barnabas Gan, group chief economist and head of market research at RHB Bank, said in a new analysis that the latest move “was likely a token tightening decision, likely a pre-emptive move to anchor inflation expectations, amidst a widening output gap.”

The expert also noted that the decision to include “very” in the appreciation of the gradient “very slightly” may be the first decision ever in history. The rate of increase is also lower than in April, when MAS raised the slope “slightly.”

“As such, we think the rate of increase is a mere 25bps steepening, a move that is a token decision to signal officials’ relative discomfort against (1) the widening output gap and (2) elevated inflation pressures into H2 2026 to H1 2027,” Gan said.

“We shift our view to expect the MAS to tighten policy further in 2026, to bring the S$NEER gradient to 1.50%, with a balance of risk to tighten further towards 1.75%, by end-year,” Gan said.

Meanwhile, Jester Koh, associate economist at UOB, said the latest tightening reflects MAS’ preference for gradual policy adjustments amidst heightened macroeconomic and geopolitical uncertainty.

“Whilst the overall tone of the Jul MPS remains hawkish, the incremental nature of the move may be interpreted as dovish by markets relative to the option for a larger 50bps slope steepening, suggesting some caution to avoid an excessively stronger S$NEER,” Koh said.

Koh sees July's move as likely the last for a while, expecting MAS to hold the S$NEER slope steady at around 1.25% p.a. through the remainder of this year and into 2027.

The caveat is energy: if elevated fuel costs persist long enough to bleed into the broader consumer price basket, MAS could be pushed into another 25bps adjustment, potentially as early as October, bringing the slope to 1.50% p.a.