ANZ’s view tempers any dovish reading of Wednesday’s surprise hold. If markets come to see it as a pause within a tightening cycle, any Singapore dollar weakness against its trading partners could prove limited. The bar for a further move now appears to be evidence that inflation risks are materialising, which puts imported energy costs at the centre of the outlook. A renewed surge in oil or refined product prices tied to Gulf escalation would be the most likely trigger for MAS to steepen the slope of its policy band again. Easing in crude would strengthen the case for an extended hold.
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ANZ reads the MAS hold as a breather, not a turning point: the earlier tightenings need time to work, but the door to more remains open.
Summary:
- ANZ, one of the few forecasters to predict the Monetary Authority of Singapore would hold policy on Wednesday, said MAS could tighten again if inflation risks materialise next year
- Khoon Goh, ANZ’s head of Asia research, said the effects of MAS’s two tightenings in April and July are still feeding through, so the central bank sees no need to act further for now
- He noted that third-quarter GDP growth beat expectations and that MAS expects core inflation to stay slightly elevated in the near term
- Goh said the hold does not mean the tightening cycle is over
The Monetary Authority of Singapore could resume tightening next year if upside risks to inflation materialise, according to ANZ, one of the few forecasters that correctly predicted the central bank would leave policy unchanged on Wednesday.
Khoon Goh, head of Asia research at ANZ, said MAS judged there was no need to tighten further at this stage because the effects of its two earlier tightening moves, in April and July, are still feeding through the economy. Monetary policy works with a lag, and changes to the path of the Singapore dollar take time to show up in import prices and, in turn, consumer inflation.
That was despite a stronger economic backdrop than expected. Goh noted that third-quarter GDP growth beat expectations and that MAS still expects core inflation to remain slightly elevated in the near term. He stressed, however, that the decision does not signal the end of the tightening cycle, and that MAS could tighten again if upside inflation risks emerge next year.
ANZ’s call set it apart from the consensus. All 10 analysts polled by Reuters ahead of the decision had expected a tightening, making [Wednesday’s hold] a surprise to most of the market.
MAS, which manages policy through the Singapore dollar’s trade-weighted exchange rate, kept the rate of appreciation, width and centre of its policy band unchanged. Because the band remains on an appreciating path, the decision leaves the existing tightening stance in place without adding to it. [Our explainer on how MAS policy works] sets out how the three levers operate.
In its statement, the central bank said the economy should expand at a firm pace in the coming quarters before moderating as the AI cycle eases and global financial conditions tighten. It forecast core inflation to average 1.5% to 2.0% in 2026 and to ease more discernibly from mid-2027, but said risks to inflation remain tilted to the upside, including from a sharp and sustained rise in energy or food prices.
ANZ’s assessment suggests the next move, if any, is more likely to be a tightening than an easing. The path of imported costs, particularly energy, and whether core inflation proves stickier than MAS expects will shape the outlook for its upcoming reviews.
This article was written by Eamonn Sheridan at investinglive.com.