MAS faces ‘tricky’ trade-off as stronger SGD curbs inflation, slows growth

Monetary policy tightened as global energy shocks drove up local prices.

The Monetary Authority of Singapore’s (MAS) decision to tighten monetary policy reflects a challenging trade-off as inflation is forecast to rise to up to 2.5% whilst growth slows amidst global energy shocks, analysts said.

“The decision to tighten is a tricky one, especially amidst a softening growth backdrop,” said Zavier Wong, market analyst at eToro, noting that policymakers are facing a ‘classic energy shock dilemma' where inflation is being imported rather than driven by domestic demand.

“A stronger Singapore dollar helps reduce import costs over time, but it also won’t do much for growth,” Wong added.

The MAS raised the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, whilst leaving its width and midpoint unchanged, its first move since April 2025, when it eased policy amidst the US–China trade war.

The move comes as inflation is expected to rise in the coming months following a sharp increase in global energy prices linked to disruptions in shipping through the Strait of Hormuz. The authority lifted its 2026 inflation forecast to 1.5%–2.5%, from 1.0%–2.0% previously.

Wong said central banks across the globe are being pushed to tighten as higher oil prices feed through supply chains, with further action expected if the strait’s disruption continues.

Separately, United Overseas Bank (UOB) described the move as “pre-emptive,” aimed at guarding against looming imported inflation risks, particularly from energy.

“However, Singapore’s imported prices of crude oil, natural gas and fuel have risen sharply and will directly add to electricity & gas and transport-related CPI inflation in the months ahead,” the bank said.

Global energy prices are also likely to remain elevated for some time, even if supplies from the Middle East are restored.

UOB said it expects MAS to tighten policy further in October 2026 by steepening the S$NEER slope to 1.5%, with a possibility that the move could be brought forward to July.

It added that more aggressive measures, such as re-centring the policy band, could be considered if core inflation exceeds 2.5%.

Meanwhile, Michael Wan, Senior Currency Analyst, Global Markets Research Singapore at MUFG Bank, said USD/SGD rose briefly after the decision, with FX forwards already reflecting expectations for further tightening.

S$NEER moved to around 0.5-0.6% below the upper bound of the exchange rate band, Wan said.

The bank said that the next policy move will depend on how inflation and growth evolve, particularly the persistence of energy supply shocks.

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