SINGAPORE – Singapore’s central bank maintained its monetary policy stance, but warned that persistent energy price pressures from the Iran war will keep inflation elevated in the coming months.
The Monetary Authority of Singapore (MAS) said on Oct 14 that it will maintain the rate of appreciation of the Singapore dollar’s trade-weighted value, also called the Singapore dollar nominal effective exchange rate (S$NEER) policy band.
Unlike most central banks, which target interest rates, MAS uses S$NEER, which is a trade-weighted basket of currencies of Singapore’s major trading partners.
This is because, in a small and open economy such as Singapore’s – where gross exports and imports of goods and services are more than 300% of GDP and almost 40 cents of every dollar spent domestically is on imports – the exchange rate has a much stronger influence on inflation than interest rates.
MAS said: “The current appreciating policy band will allow the S$NEER to continue to strengthen and lean against the anticipated near-term rise in imported inflation, ensuring the gradual easing of inflationary pressures in 2027.”
Faced with sticky inflation amid an unresolved energy shock from the Iran war, MAS has already tightened its policy stance twice this year – first in April and then in July – allowing for a stronger S$NEER that helps dampen the impact of rising import costs.
Global crude oil benchmark Brent was trading at around US$106 per barrel on Oct 14, up more than 70% since the start of the year, as supplies from the Middle East remained constrained amid the Iran war and the conflict between top oil exporter Saudi Arabia and Yemen.
“Since September, energy commodity prices have risen anew and are projected to remain high in the near term,” said the central bank.
Global and regional food prices are also expected to pick up as costlier inputs and adverse weather patterns impact food production.
Firming imported cost pressures in Singapore will keep core and all-items inflation at the current slightly elevated levels in the months ahead, MAS said.
Core Inflation, which excludes the costs of accommodation and private transport from all items inflation, rose to 2.1% on the year in July to August, from 1.5% in the second quarter.
For 2026 as a whole, both MAS Core Inflation is projected to average 1.5% to 2.5%, while all-items inflation should come in around 2%.
MAS said inflation should ease more discernibly in the second half of 2027 as global energy prices gradually moderate, with both core and all-items inflation projected to average 1.5-2.5%.
