MAS likely to flatten policy band in July after April shift: analyst

UOB revised its full-year 2025 GDP forecast to 1.5% from 2.5% previously.

The Monetary Authority of Singapore (MAS) is increasingly likely to flatten its exchange rate policy band in July, following what UOB describes as a “measured adjustment” in April that reflects deeper concerns about weakening growth and inflation.

In a macroeconomic note, UOB stated “a complete slope flattening this year is not a matter of if but of when, and we expect the move to be delivered in the upcoming Jul 2025 MPS.”

This follows MAS' decision to reduce “slightly the slope of the S$NEER policy band (est. by 50bps to 0.5% p.a.) with no changes to its width and the level at which it is centred.”

Whilst widely expected, UOB believes the conditions that previously warranted more aggressive easing — such as those seen in April 2016 — have already been met or even exceeded. “The current outlook is similar (if not more negative),” the note emphasised.

Singapore’s economic performance is deteriorating faster than expected. The Ministry of Trade and Industry downgraded its full-year 2025 GDP forecast to 0–2%, whilst UOB revised its own forecast to 1.5% from 2.5% previously.

“The tone of the Apr MPS reflected significant concerns over the tariff developments since Liberation Day,” UOB noted, warning that “Singapore’s output gap will turn negative this year.”

Core inflation has also cooled significantly, falling to 0.7% in the first two months of 2025, prompting MAS to lower its 2025 forecast to 0.5–1.5%. UOB expects it may come in even lower: “Should recent weakness in core momentum persist, the full-year average core inflation is likely to undershoot our already benign estimate of 1.0% for 2025.”

The drag from the external environment is broad and growing. The report pointed to “a more abrupt or persistent weakening in global trade” that would have “significant ramifications on Singapore’s trade-related sectors, and in turn, the broader economy.”

It highlighted that “Singapore is likely the most susceptible to a tariff-induced external slowdown within ASEAN-6,” due to its trade dependence and exposure to US demand.

Domestically, the labour market still shows resilience, but UOB warned of growing slack. “Our stylised model of a variant of Okun’s Law implies that the resident unemployment rate could rise to around 4.0% in 2025 (from avg 2.8% in 2024),” the report stated.

A deterioration similar to past crises could trigger further policy responses: “Fiscal stimulus measures in the form of cash/voucher handouts and/or job support schemes could be strengthened should the domestic labour market weaken unduly.”

With core inflation easing, trade slowing, and domestic demand softening, UOB believes MAS will need to continue adjusting its stance.

“A downward re-centering move later this year is possible should the data clearly warrant a further downgrade in either the 2025 full-year core inflation and/or growth forecast,” the bank added, though it does not currently see that as its base case.