Perhaps, this decision is a realization following last week’s disappointing GDP report confirming anemic economic growth. The decision is taken in the wake of a letdown GDP growth rate of 3.8% in the first quarter. This figure was below the 4.3% that was widely forecast by Reuters polled economists. Indeed, the MAS has now slashed its inflation forecasts, showing a more dovish stance has taken hold for the island-nation’s economic path ahead.
MAS made the announcement on its own recently released policy update. Second, it will lower the pace of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER). This change provides much-needed short-term stimulus as we navigate these uncertain times. It is a step in a wider plan that started in January when MAS first eased its policy stance since 2020.
In addition to the moves on the S$NEER, MAS adjusted their inflation projections for the next few years. The 2025 projected headline inflation has decreased by three-quarters. It is now projected to be in the range of 0.5% to 1.5%, lowered from the previous estimate of 1.5% to 2.5%. Accommodation costs (staycations) have skyrocketed largely because of the border reopening and reopened international travel. Now, it’s in the range of 0.5% to 1.5%, rather than the previous forecast of 1% to 2%.
In reaction to these changes the Ministry of Trade and Industry has lowered its GDP growth prediction for 2025 accordingly. They upped the lower bound from 0% to 1%, but lowered the upper bound from 3% to 2%. In a similar vein, MAS forecast GDP growth for 2025 within the same range, showing agreement among participants that an economic slowdown is on the horizon.
Singapore Prime Minister Lawrence Wong acknowledged this could be the beginning of some difficult times. He went on to say that Singapore’s future growth would be irreparably damaged. He further noted, “Singapore may or may not go into recession this year,” emphasizing the uncertainty surrounding the economic outlook.
Now, Singapore is experiencing a historic economic slowdown, but MAS is doubling down on its strategy. They remain committed to a policy of moderate and gradual S$NEER appreciation.
“MAS will continue with the policy of a modest and gradual appreciation of the S$NEER policy band,” – MAS