More monetary tightening on the cards as early as October, after July’s ‘half-trigger’ move: economists

MAS says firmer growth and building medium-term inflation risks warrant further restraint

[SINGAPORE] The Monetary Authority of Singapore (MAS) could move again as early as October, after a modest “very slight” tightening move on , say private-sector economists.

The central bank steepened the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, while leaving its width and the level at which it is centred unchanged.

This defied private-sector economists’ expectations for a hold, with a Bloomberg survey showing only four of 18 economists had expected the move.

MAS said firmer growth and building medium-term inflation risks warranted further restraint, even though recent inflation data has stayed benign.

Economists broadly agreed that MAS’ more upbeat growth assessment underpinned the surprise decision, pointing to the central bank’s shift from expecting the positive output gap to narrow this year – as it had said in April – to expecting it to widen.

OCBC chief economist Selena Ling and FX strategist Christopher Wong said July’s decision should be viewed as “policy fine-tuning rather than a regime shift”.

“The balance of risk is distinctly different from the April (meeting),” said the analysts.

“April policy tightening was likely reactive to the onset of the United States-Iran war, whereas today’s move is positioned as honing the tool against the core inflation which has yet to peak – and is only expected to peak in coming months – and subside only gradually after the first quarter of 2027,” they added.

RHB economists Barnabas Gan and Laalitha Raveenthar described the move as a “half trigger” – a token tightening decision – likely intended to pre-emptively anchor inflation expectations amid the widening output gap.

They said the increase amounted to a mild 25 basis point steepening, taking the slope to an estimated 1.25 per cent, and noted that the use of “very” to qualify “slightly” had not been seen before in a policy statement.

The economists expect MAS to tighten further in 2026, projecting the S$NEER slope to reach 1.5 per cent, with risks skewed towards a steeper 1.75 per cent by year-end.

The reluctance to move by a fuller 50 basis points likely reflected the “significant uncertainty around the macroeconomic outlook” that MAS itself flagged, including risks from a possible pullback in artificial intelligence-related investment, said Gan and Raveenthar.

HSBC senior Asean economist Yun Liu likewise estimated the slope increase at 0.25 percentage point, smaller than April’s 0.5 percentage point steepening, and said the size of the move delivered a bigger surprise than the tightening decision itself.

HSBC is thus upgrading its 2026 gross domestic product growth forecast to 4.6 per cent, from 3.3 per cent previously. Liu does not believe this is MAS’ last tightening move of the year, and expects a further increase in October that could bring the S$NEER slope to 1.5 per cent by year-end.

Bank of America Global Research analysts Ang Kai Wei, Abhay Gupta, Claudio Piron and Rahul Bajoria said July’s policy move points to a policy preference for greater flexibility amid a more uncertain external backdrop, where risks to growth and inflation are more two-sided than before.

The bank’s base case is for MAS to steepen the slope by another 25 basis points in October, with further calibrated moves possible should demand-pull inflation pressures intensify.

Mixed expectations

Standard Chartered chief economist Edward Lee said the “very slightly” wording implies that future moves may come in similarly small increments amid heightened uncertainty.

He did not believe the move was pre-emptive, with continued robust growth more likely behind the decision to tighten again – though he added that MAS appeared to be moving cautiously given still-high external uncertainty.

Unlike RHB and HSBC, StanChart’s base case is for MAS to hold policy steady in October, with risks tilted towards further tightening in incremental steps of 25 basis points, as inflation broadness and labour market conditions become key considerations in the months ahead.

Maybank economists Chua Hak Bin and Brian Lee took a similar view to StanChart, and do not expect further S$NEER tightening from MAS in 2026.

They said the July move was likely undertaken mainly because MAS is concerned about elevated inflation stemming from external price pressures, as well as the risk that strong economic growth – both in Singapore and globally – could spill over into demand-pull inflation.

But inflation risks remain contained, they said. The economists maintained their core and headline inflation forecasts at 1.7 per cent and 1.6 per cent for 2026 and 2027, respectively – at the lower end of MAS’ forecast range – citing a strengthening Singapore dollar and a softening labour market.

They said MAS would tighten further only if there is clearer evidence that demand-pull pressures are gaining a foothold, and consider the current +125 basis point policy slope to already be appropriate for maintaining price stability.

Oxford Economics senior economist Sheana Yue said the decision reflected MAS’ focus on medium-term inflation risks rather than recent benign inflation outturns, with a stronger growth outlook supporting a restrictive stance even as growth is expected to slow in the second half of the year.

She pointed to the breakdown of the Middle East ceasefire as having pushed up crude and refined fuel prices, raising the risk of imported inflation through higher fuel and freight costs.

Despite differing views on timing, economists broadly agreed that MAS’ language leaves the door open to further tightening, rather than signalling a pause, as the central bank continues to weigh building medium-term inflation risks against a fragile external backdrop.

MAS’ outlook

In its own statement, MAS kept its 2026 forecast range for both core and headline inflation unchanged at 1.5 to 2.5 per cent.

The central bank said core inflation is projected to step up from July and remain elevated into early 2027, before easing more discernibly from around the middle of that year as global energy prices gradually moderate.

On growth, MAS said Singapore’s economy is expected to continue expanding at a firm pace in the second half of the year, supported by AI-related capital expenditure, construction activity and steady financial sector growth, with the positive output gap forecast to widen slightly in 2026.

source: The Business Times https://www.businesstimes.com.sg/singapore/more-monetary-tightening-cards-early-october-after-julys-half-trigger-move-economists