Singapore Eases Monetary Policy to Counter US Tariff Threat

The Monetary Authority of Singapore, the city-state’s central bank on Monday announced slight reduction in the pace of its dollar’s trade-weighted appreciation in response to easing inflation and rising risks to economic growth following the US President Donald Trump’s decision to enforce reciprocal tariffs against more than 150 countries including Singapore.

MAS said that in January this year, it kept the Singapore dollar nominal effective exchange rate (S$NEER) policy band on a modest and gradual appreciation path, but reduced its slope slightly and there was no change to the width of the policy band or the level at which it was centred.

Since then, the S$NEER has fluctuated within the upper half of the policy band in response to shifts in the macroeconomic outlook and shocks to global trade policies. Notwithstanding the volatility, the average level of the S$NEER over the last three months has been broadly unchanged from that in the preceding three months, MAS said.

“MAS will continue with the policy of a modest and gradual appreciation of the S$NEER policy band. However, the rate of appreciation will be reduced slightly. There will be no change to the width of the band and the level at which it is centred,” the central bank said.

Core Inflation                               

The core inflation eased significantly to 0.7% y-o-y in Jan–Feb 2025, from 1.9% in Q4 of 2024 as it fell by more than expected across a wide range of goods and services. Soft consumer spending on F&B services and retail goods domestically, as well as moderating cost pressures, have dampened consumer price increases. Enhanced government subsidies also contributed to lower services inflation. The re-basing of the CPI in January this year accounted for only a small part of the step down in inflation.

The MAS expects core inflation, which excludes private transport and accommodation costs to better represent household expenses – to average 0.5% to 1.5% in 2025, down from 1% to 2% predicted in January.

At the same time, the Ministry of Trade and Industry (MTI) downgraded its forecast for full-year 2025 gross domestic product (GDP) growth to a range of 0% to 2%, from 1% to 3% previously, compared with 4.4% in 2024.

“Given Singapore’s high trade dependency and deep integration with global supply chains, slowing global and regional trade as well as heightened policy uncertainty will weigh on the external-facing sectors, which could spill over into the domestic-oriented sectors,” MAS said.

“There are downside risks to Singapore’s economic outlook stemming from episodes of financial market volatility and a sharper-than-expected fall in final demand abroad,” MAS added.