Softer inflation clears path for policy focus on growth

Headline and core inflation fell to 0.6% and 0.5%, respectively.

Experts say July’s softer inflation has cleared the way for the central bank to prioritise supporting economic growth, which remains exposed to global uncertainties.

In July, headline inflation eased to 0.6% while core inflation dropped to 0.5%.

“These softer prints show inflation is no longer the obstacle it once was. The conversation is shifting from bringing inflation under control to supporting growth,” said Josh Gilbert, market analyst at eToro.

The greater risk now lies in an economic slowdown driven by global uncertainties, rather than inflation.

“Although headline inflation remains contained, the balance of risk has shifted towards supporting growth amid external uncertainties,” said Barnabas Gan, group chief economist at RHB.

Given the latest developments in inflation, Gan expects the MAS to keep its policy parameters unchanged into year-end. 

He, however, said there’s a possibility of a flatter S$NEER slope or a wider policy band from the current perceived ±2.0%. 

Gilbert said that with core inflation easing and growth likely to moderate in the second half, further loosening in October could help buffer downside risks.

“With MAS already easing twice at the start of the year, allowing time for this to take effect whilst waiting for further clarity does make sense,” Gilbert said.

“For me, though, it’s becoming more evident that inflation is no longer the obstacle, and today’s data makes it increasingly difficult for MAS to justify sitting on its hands,” he added.

Maybank analysts Chua Hak Bin and Brian Lee Shun Rong said MAS is likely to keep policy unchanged this year.

They project core inflation at 0.5% in 2025 and 0.8% in 2026, with headline inflation at 0.8% and 0.9% respectively. 

UOB senior economist Alvin Liew and associate economist Jester Koh see core inflation at 0.6% in 2025 and 1.1% in 2026. Their headline CPI forecasts remain at 0.9% in 2025 and 1.6% in 2026, though they caution the 2025 forecast may undershoot.