MAS to keep Singdollar support as inflation risks rise: Analysts

It is set to stand pat at Oct 14 policy review amid Mid-East conflict, looming US election

- Ovais Subhani

Inflation in Singapore has cooled, but its central bank is poised to stick to its three-year-old policy stance that supports a stronger currency, given rising risks of higher prices from the Middle East conflict and the US presidential election, economists told The Straits Times.

If it stands pat at its upcoming policy review on Oct 14, the Monetary Authority of Singapore (MAS) will be bucking the global easing trend seen in the first interest rate cuts in four years by the US Federal Reserve, European Central Bank and Bank of England.

Unlike other central banks, MAS uses the trade-weighted value of the Singapore dollar to achieve price stability. It guides the local dollar against a basket of currencies of its major trading partners to crimp the cost of imports.

It has to balance this against the risk of a too-strong Singdollar that would make exports more expensive to overseas markets and deter tourists from visiting Singapore.

Like other central banks, MAS has succeeded in bringing down core inflation which hit 5.5 per cent at its peak in January 2023. Still, core inflation picked up to 2.7 per cent in August, after falling to 2.5 per cent in July, its lowest since 2022.

The recent surge in global crude oil prices as the conflict in the Middle East escalates threatens to upend some of the gains in the fight against inflation.

Higher oil prices can drive up prices of products made out of it, such as petrol, diesel, jet fuel and fuel oils used in ships. With a lag, oil prices also influence the cost of coal and natural gas - the dominant fuels in power generation.