Singapore’s central bank tightened policy further on Monday, to brace for expected inflationary pressures as renewed tensions in the Middle East threaten to keep energy prices elevated.
The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than interest rates, raised the rate of appreciation of its policy band “very slightly,” it said. It left the width and centre unchanged.
Four out of 18 analysts in a Bloomberg survey expected a steepening of the band, while one predicted a re-centering. The remaining 13 expected no change.
“External price pressures are expected to persist and pass through more broadly to domestic consumer prices in the period ahead,” the MAS said in a statement.
Policymakers have been weighing the impact of the US-Iran conflict, including inflation-fueling higher oil prices and the risks of a global economic slowdown, as well as the boost from the artificial intelligence boom, which has powered exports higher.
Singapore’s economy expanded 5.7% last quarter, putting it on track to beat the government’s latest full-year projection of 2%-4%.
Meanwhile, global trade uncertainty is rising again as president Donald Trump rebuilds his tariff wall. The city-state was hit with a 12.5% duty on Friday, although key electronic and pharmaceutical shipments to the US are currently exempted.
Amid those pressures, Singapore inflation has quickened yet remains relatively tame this year, coming in at 1.6% last month, below the MAS’ medium-term target of around 2%. “Singapore’s imported costs are likely to rise in the quarters ahead,” the MAS said Monday.
Other major Southeast Asian central banks have adopted a wait-and-see approach.
Indonesia and Malaysia left their rates unchanged this month despite policymakers sounding the alarm regarding renewed tensions in the Middle East, possibility of global inflation accelerating and the US Federal Reserve hiking its key rate sooner.
While most central banks use interest rates, Singapore maintains medium-term price stability by managing its currency against a trade-weighted basket – known as the S$NEER – within an undisclosed target band.
The MAS tightened policy in April, the first central bank in Asia to respond to the oil shock triggered by the Iran conflict.
