MAS pauses policy tightening amidst 30% risk of Gulf War energy shock

Maybank notes fuel costs and supply shocks have not triggered consumer price spikes.

The Monetary Authority of Singapore (MAS) is expected to keep its policy settings unchanged at its July meeting, though analysts warn a tightening later this year remains possible if the Gulf War's energy shock broadens.

“We now expect MAS to remain on a prolonged pause through 2026 and into 2027, maintaining the current S$NEER slope setting of 1.0% p.a,” UOB Global Economics and Markets Research said in its latest analysis.

Latest government data showed core inflation settling at 1.4% year-on-year in May, broadly unchanged from April. This, as higher inflation in food and retail goods was offset by weaker services price growth.

In April, MAS tightened monetary policy by slightly increasing the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

Maybank said in its analysis that higher energy prices and supply disruptions from the Gulf War have not translated into a significant rise in inflation.

UOB also said “inflationary pressures (on an m/m nsa basis) were muted across most broad categories—including food, clothing & footwear, recreation & culture, and education—except for health (May: +0.5%; Apr: +0.4%) and miscellaneous goods and services (May: +0.2%; Apr: +0.4%).”

“Whilst the direct effects of the energy price shock (via petrol and utilities) are evident, the broader transmission into core inflation appears softer and delayed, suggesting weaker pricing power amongst firms amid an uncertain demand backdrop,” the UOB report read.

Barnabas Gan, group chief economist and head of market research at RHB Bank, also expects MAS to keep its monetary policy unchanged in July.

“However, risks are skewed toward a potential tightening later in the year if prolonged tensions in the Middle East sustain upward pressure on global energy prices,” Gan said.

UOB said it sees “some risk (30%) of a 50bp slope steepening in Jul/Oct 2026 to lean against rising imported inflation pressures and to prevent a broadening of inflationary pressures that could de-anchor inflation expectations, or, should the Middle East conflict re-escalate, leading to a resurgence in energy prices.”

Both UOB and RHB maintained their respective full-year headline and core inflation projections for 2026.

UOB sees core inflation peaking around August to September at about 2.5% before gradually moderating, remaining above 2.0% through the first half of 2027 and easing below that level in the second half (H2) of next year.

The bank no longer sees upside risks to its baseline projections, as energy prices have softened in recent weeks and its commodities strategist expects a gradual moderation in Brent crude oil prices.

For RHB, full-year headline and core inflation will settle at 2.5% and 2.0%, respectively, with an upside bias.

“Whilst recent easing in geopolitical tensions and lower crude oil prices have helped alleviate near-term imported inflationary pressures in Singapore, inflation dynamics warrant continued monitoring amid signs of firmer global cost pressures,” Gan said.

RHB expects inflationary pressures to intensify in H2 2026 if disruptions to Middle East oil supplies emerge and continue to transmit through global supply chains.