The Monetary Authority of Singapore said it would slightly reduce the prevailing rate of appreciation of its exchange rate-based policy band known as the Nominal Effective Exchange Rate, or S$NEER.
The width and the level at which the band is centred were unchanged, it said.
The central bank said exporting countries hit by tariffs will face weaker demand and pressure to lower prices for their output, meanwhile global financial conditions have tightened as asset markets start repricing risks in the global economy.
“These factors will exert widespread and potentially reinforcing drags on production, trade, and investments in Singapore’s major trading partners,” the MAS said.
“A more abrupt or persistent weakening in global trade will have significant ramifications on Singapore’s trade-related sectors, and in turn, the broader economy,” the MAS said. Economists said they would not rule out another easing in the second half of the year if economic conditions deteriorate, given the central bank’s dovish rhetoric. OCBC economist Selena Ling said: “Reference to the output gap turning negative and inflation risks to the downside are explicit.”
Analysts polled by Reuters had widely expected the MAS to loosen monetary policy by reducing the slope of the band in which it allows the S$NEER to trade.
Instead of interest rates, the MAS manages monetary policy by letting the local dollar rise or fall against the currencies of its main trading partners within the S$NEER.
The Singapore dollar reversed earlier losses to trade higher after the policy decision.
GDP DOWNGRADED
Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.
Separate data showed the economy grew 3.8% in the first quarter from a year earlier, slowing from an expansion of 5.0% in the fourth quarter and 4.4% in 2024.
The trade ministry on Monday downgraded Singapore’s GDP growth forecast for 2025 to 0% to 2% from the previous range of 1% to 3%.
Maybank economist Chua Hak Bin said further easing in the second half to a neutral bias was possible, in the event of a technical recession, but he was “pencilling in a slowdown, not a recession at this stage”.
“We maintain our GDP growth forecast at 2.1%, slightly above MTI’s new range of 0%-2%,” he added.
On Monday, the central bank adjusted its core and headline inflation forecasts for 2025 to 0.5% to 1.5% from a previous 1% to 2% and 1.5 to 2.5%, respectively.
