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Singapore’s central bank (MAS) is expected to keep monetary policy unchanged

Singapore’s central bank (MAS) is expected to keep monetary policy unchanged

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Singapore’s central bank is expected to keep its monetary policy unchanged at its upcoming review on July 31. This comes amid persistent global economic uncertainty. According to a Bloomberg survey, 14 of 19 economists anticipate that the Monetary Authority of Singapore (MAS) will maintain its current policy stance. The MAS previously eased policy in January and April, marking its most accommodative position in five years. 

Singapore’s approach to its monetary policy is quite exceptional. Unlike central banks that alter interest rates, MAS uses the exchange rate as its main instrument. It conducts monetary policy by adjusting the width, midpoint, and slope of a policy band for the Singapore dollar. This way, a small and open economy like Singapore can better deal with imported inflation and external shocks.

Five economists predict more easing, including those at Goldman Sachs Group Inc. and Bank of America. They said MAS may choose to “slightly” lower the slope of its policy band to provide a little more leeway for an economy already facing external shocks.

Strong growth and stable inflation strengthen the case for MAS policy hold

One of the big reasons the markets had anticipated the hold in policy is that Singapore’s economic performance in the recent past has been quite strong.”

Earlier this month, estimates indicated Singapore skirted a technical recession. The economy expanded more than expected in Q2 2025, driven by strong growth in manufacturing, construction, and exports of services.

That has boosted economists’ confidence, with many believing the worst may be over. Chua Hak Bin, an economist at Maybank Securities, said the growth outlook appeared to have bottomed out. He noted that given the economy’s resilience and stable core inflation, their team had projected that MAS would keep policy unchanged in the second half of the year, despite lingering downside risks.

Inflation has also been tepid in Singapore, with core prices up 0.6% in June. Although MAS does not have an explicit target for inflation, it has signaled that a 2% rate is consistent with price stability. With prices stable and growth back on track, the central bank has some time before it needs to continue to act.

However, not all analysts are persuaded that standing pat is the right path. What if they’re too tight? Some say that they believe inflation expectations remain very weak and that the Singapore dollar is quite strong, so that export competitiveness could be hit further.

Global risks drive MAS’s cautious outlook

Though domestic data looks increasingly optimistic, global risks remain a major factor in Singapore’s economic prospects. The escalating trade showdown between the United States and its economic partners worldwide is on everyone’s minds.

Singapore’s trade-independent centrality to the whirling tensions of global commerce was showcased this week as US President Donald Trump proposed new import tariffs on the United States from China, and 10% of those imports could affect the trade-reliant city-state. Although that rate is lower than that endured by some of Singapore’s neighbors, it could still be a significant drag on one of the world’s most open economies.

MAS Managing Director Chia Der Jiun has publicly recognized this risk, saying earlier this month that although core inflationary pressures are still mild, policymakers must be alert to risks in both directions. He cautioned that a resurgence in global trade protectionism could damage Singapore’s export-oriented industries, such as electronics, logistics, and finance.

If global downside risks materialize, seven of nine economists, who answered a follow-up question to the survey, expect MAS to move towards easing in 2025-2026.

Central banks worldwide have been growing increasingly worried that structural changes in global trade, such as Trump’s reshoring ambitions, could slow investment and trade over the long term. If these changes persist, Singapore could be steered into renewed economic contractions, even if inflation is kept in check.

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Japan’s core inflation eases to 3.3% in June

Japan’s core inflation eases to 3.3% in June

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Japan’s core inflation rate fell to 3.3% in June, offering some relief after hitting a 29-month high.

The core inflation figure excludes fresh food, which fluctuates more due to weather and supply conditions.

The most recent figures, published on Friday by Japan’s Internal Affairs Ministry, were generally in line with the forecasts of economists polled by Reuters.

The headline inflation rate covers all categories and was down to 3.3% in June from 3.5% in May. Nonetheless, it is the 39th straight month that inflation has exceeded the Bank of Japan’s (BOJ) 2% goal.

A broader measure, the so-called “core-core” rate of inflation, which excludes not only fresh food but also energy prices, rose to 3.4% from 3.3% the previous month. It’s regarded as the benchmark for underlying inflation trends and is closely monitored by the BOJ.

While inflation has slowed, prices are still high compared with previous years, and the public continues to bear an increasing cost of living.

Rice prices begin to stabilize

A key driver of recent Japanese inflation has been rice, a staple in virtually every household. In May, rice prices had surged more than 101.7% year-on-year, the steepest jump in over 50 years.

But that rate slowed a bit in June. The 100.2% year-on-year jump in the price of rice was the first indication of a let-up in months.

The relaxation came after the government released rice stockpiles earlier this year to cool prices. The intervention helped shore up supply and dampen speculation in the market.

However, prices are still high, and officials warn that the ripples of that bad harvest in 2023 are still being felt. The 2023 harvest season was affected by abnormal weather, including typhoons and record heat that cut output in the main rice regions.

Although the current trend is promising, according to experts, a return to stable rice prices will depend on the 2025 harvest, which is still unknown.

Trump’s tariffs threaten Japan’s economic recovery

The confidence data comes from Japan’s economy, which is increasingly clouded by external economic uncertainties. A big one is US trade policy.

US President Donald Trump says he is not ready to strike a trade deal with Japan. That has stoked fears of additional tariffs that would damage Japanese exports, particularly of cars, the largest product that Japan ships to the United States.

A 25% tariff on a broad swath of Japanese goods will go into effect on August 1, while a 25% levy on cars will remain in place.

The introduction of these tariffs would come at a particularly challenging time for the Japanese economy. Japan has announced its GDP fell 0.2% in the first three months of 2025 compared to the previous quarter. It was the first contraction in a year, driven primarily by a steep export fall.

The financial pressure is shaping up to be a significant issue ahead of next summer’s upper house elections, in which voters remain angered by the creeping prices but stagnant wages.

The persisting inflation growth has some market participants speculating about the need for interest rate increases by the Bank of Japan. After all, the headline inflation rate has been above the 2% target for over three years.

But the central bank remains wary. Bank of America analysts have said the BOJ will unlikely raise rates before January 2026.

They say BOJ Governor Kazuo Ueda targets inflation expectations, which remain below 2%. These expectations — what businesses and households expect as future inflation — are an important signal of whether inflation is genuinely embedded in the economy.

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