The Monetary Authority of Singapore (MAS) decided to keep its monetary policy unchanged as of its meeting on 30 July 2025. The MAS will maintain its stance on the appreciation rate of the S$NEER policy band, without altering its width or central level.
The projected inflation rates for 2025 are expected to average between 0.5% and 1.5% for MAS core and CPI-All Items inflation. While underlying inflationary pressures are contained, risks persist. Singapore’s GDP growth is projected to slow in the latter half of 2025, after a strong start in the first half. Overall, the GDP growth for 2025 is predicted to be around zero percent for the output gap.
Singapore Economic Uncertainties
The Singapore economy faces uncertainties, including potential trade conflicts, financial instability, and geopolitical tensions, which could contribute to broader global economic slowdowns. The MAS primarily uses its exchange rate policy as its main tool, managing the SGD exchange rate against the currencies of major trading partners, rather than adjusting domestic interest rates.
The S$NEER is a trade-weighted index influencing the Singapore dollar relative to its main trading partners. The MAS allows the S$NEER to fluctuate within a specified band, intervening only when it breaches the band to maintain stability. This policy band consists of adjustable parameters: the slope, level, and width.
Given the decision to hold policy steady, we see this as a temporary floor for the Singapore dollar. This move likely disappointed traders who were positioned for more easing, so the immediate reaction should be a stronger SGD. In the coming weeks, we expect the currency to remain well-supported within its policy band.
This stability from the central bank suggests currency volatility will be limited. The MAS has effectively signaled it will defend the S$NEER policy band, capping both extreme upside and downside. Therefore, we believe strategies that profit from low volatility, such as selling straddles on the USD/SGD pair, could be favorable.
Global Trade Impact On Singapore
Singapore’s economy is heavily reliant on global trade, particularly with China, which has shown some recent signs of life. For instance, China’s official manufacturing PMI registered 50.8 in March 2024, indicating expansion and a potential boost for regional trade. This external resilience likely gave the MAS confidence to pause its easing cycle for now.
However, the domestic picture is one of moderating growth for the rest of 2025. This expected slowdown could put pressure on local equities. We feel it is prudent to consider hedging strategies, such as buying put options on the Straits Times Index (STI) or its associated ETFs.
Historically, Singapore’s interest rates, like SORA, often follow global trends but with a lag due to the FX-focused policy. With the MAS now on hold, we anticipate local rates may not fall as fast as they have in other major economies that are still easing. This could create opportunities in the interest rate swap market for traders positioned for a stable SORA.
The key risk is any surprise in upcoming data, as the market itself was clearly divided on the outcome. Singapore’s Q1 2024 GDP grew by 2.7% year-on-year, providing a strong base, but any sign that the H2 slowdown is sharper than expected could shift sentiment quickly. We will be closely monitoring leading indicators for any change in the economic trajectory.
