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Singapore’s central bank has eased monetary policy for the first time in four years amid rising expectations of trade turmoil after Donald Trump’s return to the US presidency and moderating domestic inflation.
The Monetary Authority of Singapore on Friday said it would slow the rate of the Singapore dollar’s appreciation against a basket of its trading partners’ currencies, citing anticipations of trade friction.
“Global economic policy uncertainty has risen since the October monetary policy review, mainly reflecting expectations of increasing trade policy frictions,” the MAS said in a statement, adding that global growth could slow in 2025.
Unlike most central banks, the MAS does not use domestic interest rates to set monetary policy. Instead, it has a long-term policy of allowing the Singapore dollar to gradually appreciate against other currencies.
By reducing the slope of its appreciation, the monetary authority in effect lowers borrowing rates in the city-state’s heavily trade-dependent economy.
The move — the first time the MAS has loosened policy since the outbreak of Covid-19 in 2020 — came after inflation data released on Thursday showed the city-state’s core consumer price index rose 1.8 per cent in December from a year earlier, the second consecutive month of growth below 2 per cent.
The central bank also lowered its inflation forecast for 2025 to between 1 and 2 per cent, down from 1.5 to 2.5 per cent in October. Although the MAS does not set a hard inflation target, it has said a rate under 2 per cent “is consistent with overall price stability”.
Singapore’s small and open economy is highly exposed to global trade and financial flows, allowing the MAS to control lending rates through the exchange rate. According to the central bank, 40 cents of every dollar spent in Singapore is on imports, while gross imports and exports of goods and services account for more than 300 per cent of GDP.
The MAS sets a policy band for its foreign exchange rate, though it does not disclose the exact levels.
It adjusts the slope, level and width of the band to control the pace and volatility of currency moves, allowing the Singapore dollar to strengthen or weaken against the currencies of its biggest trading partners.
The MAS also said on Friday that Singapore’s GDP growth was expected to drop from 4 per cent in 2024 to between 1 and 3 per cent this year.
“Overall, the outlook for Singapore’s growth and thus inflation remains subject to uncertainties in the external environment,” said the central bank.
The Singapore dollar edged down in early trading on Friday before reversing course to trade at S$1.3526 per US dollar.
