Experts flag tightening trigger as MAS enters 'delicate balance'

A policy shift could come should imported inflation dynamics begin to change.

A further tightening of monetary policy may be implemented this year if the increase in prices begins to affect the overall cost of living broadly, experts said.

“Further tightening would depend on whether inflationary pressures, particularly commodity prices, outweigh downside risks to growth,” CGS International said in an analysis.

The Monetary Authority of Singapore (MAS) has announced a slight increase in the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. Meanwhile, there was no change to the band’s width or the level at which it is centred.

CGS International said “the current policy stance remains appropriate, as a firmer Singapore dollar should help contain imported inflation.”

It also expects MAS to retain the current policy in the near term as it assesses evolving geopolitical risks.

Morgan Stanley said MAS’s latest move also allowed for a faster pace of appreciation in the S$NEER, a move largely aimed at guarding against the risk of inflation rising in the near term because of energy price shocks and their potential spillover effects.

The adjustment “highlighted the delicate balance it seeks between managing inflation risks and supporting growth.”

“Given this backdrop, our base case forecast is that the MAS will not tighten policy further at the July 2026 policy meeting,” the Morgan Stanley report read, adding that developments in potential triggers for tightening will need to be closely watched.

“If underlying inflation dynamics were to shift and imported inflation were to begin to exert stronger upward pressure on core measures, the MAS might be prompted to consider further tightening in July,” it said.

MAS has raised its 2026 core inflation and CPI-all items inflation forecasts to 1.5% to 2.5%, from 1.0% to 2.0% previously.

“Should energy price shocks recede quickly and growth impulses strengthen, these developments could serve as catalysts for MAS to reassess its policy stance at the upcoming meeting,” Morgan Stanley said.

Gross domestic product (GDP), which settled at 4.6% in the first quarter of 2026, is also a key factor.

The Ministry of Trade and Industry Singapore projects GDP growth to range between 2.0% to 4.0% this year. However, it has warned that the impact of the US-Israel-Iran conflict may affect economic activity in the coming quarters.