MAS Holds the Singdollar Policy Band Unchanged in a Surprise Pause and Warns Inflation Will Stay Elevated Into 2027

MAS said it will keep unchanged the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER), its trade-weighted policy band. It tightened twice earlier this year, in April and July. JPMorgan Chase economist Siddharth Jamad estimated the central bank has delivered 75 basis points of tightening this year. MAS said the current appreciation band will allow the S$NEER to strengthen and lean against the expected near-term rise in imported inflation, ensuring a gradual easing of inflationary pressure in 2027.

Maybank noted the S$NEER was 1.67 per cent above the midpoint of the policy band after the announcement, from 1.73 per cent before it.

Core inflation, which excludes accommodation and private transport, rose to 2.1 per cent in July and August from 1.5 per cent in the second quarter. MAS attributed the rise to earlier increases in energy and other imported costs passing through to electricity, gas, food and fuel-intensive services such as airfares and point-to-point transport, partly offset by healthcare subsidies and larger telecommunications discounts. Brent crude was around US$106 a barrel on 14 October, up more than 70 per cent since the start of the year, and energy prices have risen again since September.

For 2026, MAS now expects core inflation to average 1.5 to 2 per cent and headline inflation around 2 per cent, lower than its July forecast of 1.5 to 2.5 per cent for both. For 2027, it projects both core and headline inflation to average 1.5 to 2.5 per cent, above the historical average of 1.5 per cent. It expects inflation to ease more discernibly from mid-2027, with risks tilted to the upside from renewed Middle East disruptions or El Nino-related food price increases.

MAS said Singapore’s economy is “expanding at an above-trend pace”, with technology-related sectors accounting for around 75 per cent of overall growth, and it expects continued steady expansion. AI-related activity is projected to moderate in the latter half of 2027, while construction and financial services keep growing. MAS said the risk of an AI downturn appears less immediate, but it described one plausible scenario as an “AI infrastructure credit shock”, in which weaker AI monetisation leads hyperscalers to cut capital expenditure and triggers a self-reinforcing downturn.

MAS also flagged tighter financial conditions, meaning higher borrowing costs and reduced access to loans for investments, mortgages, credit cards and car loans, as an additional risk. After the US central bank’s first rate hike since 2023 in September, US sovereign bond yields have risen to multi-decade highs, pushing up rates worldwide including in Singapore. MAS said Singapore’s financial conditions have tightened slightly but still trade at a discount to US rates, and bank lending to residents and businesses continues to rise strongly.

Maybank economists Chua Hak Bin and Brian Lee said the narrowed forecast suggests core inflation is at or close to its peak, and expect MAS to hold in January and through the rest of 2027, with the decision setting “a high bar for further policy tightening”. OCBC’s Selena Ling expects a hold until at least the January 2027 meeting, assuming the output gap narrows and core inflation eases from mid-2027. DBS senior economist Chua Han Teng called it a “proactive” pause and trimmed DBS’s 2026 core and headline forecasts to 1.8 per cent and 2 per cent from 2 per cent and 2.2 per cent. JPMorgan expects an extended hold through 2027.

Not everyone sees a long pause. HSBC’s Yin Liu noted MAS did not repeat the phrase “sufficiently tight” it used when it ended its earlier tightening cycle, and now expects a 25-basis-point slope increase in January 2027. UOB’s Jester Koh expects a hold through 2027 but puts the odds of a January slope increase at 30 per cent, noting core inflation could peak at 2.5 per cent in January. Saxo’s Charu Chanana said the pause should not be seen as a pivot.