Economists split on Singapore monetary policy after surprise growth
Of 12 analysts polled by Reuters, six expect the Monetary Authority of Singapore (MAS) to ease its currency-based monetary policy at the July 30 review to offset an expected negative output gap. The other six forecast no change.
The MAS has already eased policy twice in January and April this year in response to growth concerns triggered by US tariffs, following a tightening move in October 2022.
However, recent economic data has surprised on the upside. Singapore avoided a technical recession after growing 1.4 per cent quarter-on-quarter in the second quarter, according to preliminary figures released last week. Much of the resilience is attributed to frontloading of activity.
Singapore conducts monetary policy by managing the exchange rate rather than interest rates. It guides the Singapore dollar nominal effective exchange rate (S$NEER) within an undisclosed policy band and adjusts the slope, mid-point and width of the band as needed.
Divergent views on the outlook
Economists at Maybank expect the MAS to hold policy steady in light of the improved economic outlook. They also upgraded their 2025 GDP growth forecast to 3.2 per cent from 2.4 per cent.
OCBC analyst Christopher Wong echoed this view, noting: "Having implemented two consecutive easings in the first half of 2025 by reducing the policy slope, a pause at this juncture will allow policymakers to evaluate the effects of earlier easing measures and await greater clarity on tariff-related uncertainties."
However, Barclays analysts believe the MAS will further ease by flattening the S$NEER slope.
"The MAS knows better than to celebrate any upside surprises to second quarter GDP too early: frontloading implies an eventual payback – likely in the second half of 2025 – while the more pernicious effects of uncertainty on investment will take time to show up," they said.
Cautious tone globally
Central banks worldwide are maintaining a cautious stance. The US Federal Reserve is expected to hold interest rates steady in its July meeting, while the European Central Bank left rates unchanged on Thursday after eight consecutive cuts.
Singaporean authorities have cautioned that growth could weaken in the second half of 2025 as early activity subsides amid trade uncertainty. In April, the government lowered its full-year GDP growth forecast to a range of zero to two per cent, from 1.0 to 3.0 per cent previously.
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