MAS maintains Singapore dollar policy band as inflation stays slightly elevated

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MAS holds policy steady

Highlights

The Monetary Authority of Singapore maintains the S$NEER policy band unchanged, allowing gradual currency appreciation to counter anticipated short-term imported inflation pressures.
Singapore's GDP grew 5.4% year on year in Q3 2026, led by technology-related sectors, while MAS projects steady near-term growth but expects momentum to ease in H2 2027.
MAS Core Inflation rose to 2.1% year on year in July-August from 1.5% in Q2, with 2026 core inflation forecast at 1.5%-2.0% and CPI-All Items at around 2.0%.

Policy stance and economic outlook

As reported by Monetary Authority of Singapore, MAS will maintain the rate of appreciation of the Singapore dollar nominal effective exchange rate policy band, with no change to the width of the band or the level at which it is centred.

Since the July 2026 policy review, the S$NEER has strengthened modestly within the upper half of the appreciating band. MAS says the current setting allows the currency to continue strengthening and lean against the anticipated near-term rise in imported inflation, while supporting a gradual easing of price pressures in 2027.

Singapore's major trading partners continue to post robust economic activity, supported in part by AI-related global investment that is sustaining industrial production and trade, particularly in the region. While downside risks remain, global growth is projected to stay resilient in the near term before moderating gradually over 2027 as the current exceptional pace of AI-driven expansion eases and higher interest rates weigh on final demand.

According to advance estimates cited from the Ministry of Energy, Trade & Industry, Singapore's GDP grows 5.4% year on year in the third quarter of 2026 and 1.1% on a quarter-on-quarter seasonally adjusted basis. Growth is led by technology-related sectors, while construction, financial services and real estate also show firm activity, although some consumer-facing segments remain weak.

The economy is expected to continue expanding steadily in the coming quarters, supported by strong orders for AI products and added production capacity. MAS says that momentum should moderate in the second half of 2027, even as major infrastructure construction and financial services activity continue and the positive output gap narrows through next year.

Inflation risks and implications for Singapore

MAS Core Inflation rises to 2.1% year on year in July and August, from 1.5% in the second quarter, as higher import costs pass through to a broader range of goods and services. Electricity and gas tariffs have stepped up, fuel-intensive transport services remain elevated, and food inflation rises to 2.2% from 1.9% as accumulated cost increases feed into consumer prices.

At the same time, services inflation comes in lower than projected, helped by stronger government subsidies for healthcare and more intense price competition in telecommunications services. Since September, energy commodity prices have risen again and are projected to remain high in the near term, while global and regional food prices are also expected to pick up as input costs and adverse weather affect production.

MAS says firming imported cost pressures will keep core inflation and CPI-All Items inflation at slightly elevated levels in the months ahead. However, inflation is expected to moderate over 2027 as import costs ebb, supply disruptions to energy and food commodities ease, and domestic price pressures remain subdued amid continued productivity gains and further healthcare and education subsidies.

For 2026, MAS Core Inflation is forecast to average 1.5% to 2.0%, while CPI-All Items inflation is seen at around 2.0%. For 2027, both measures are projected to average 1.5% to 2.5%, although MAS says risks to inflation remain tilted to the upside because of potential further jumps in global energy and food prices or broader spillovers from the AI-related boom.

The central bank adds that it remains well-positioned to respond to risks to medium-term price stability. It also flags downside risks to growth and inflation from a larger-than-expected rise in interest rates or a sharper pullback in AI-related investment, while a faster recovery in Middle East energy production and shipments could bring a greater decline in energy prices.

In our earlier coverage of ECB economist Philip Lane’s remarks on AI’s impact on the euro area, we explained how wider AI adoption could weaken workers’ bargaining power and slow wage growth even while inflation remains elevated. We also noted that heavy corporate borrowing to fund AI investment may be tightening financing conditions and lifting long-term yields, creating an additional channel that can influence how central banks assess inflation risks and set policy.

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