MAS policy shift unlikely to weaken Singdollar, but stronger US dollar might

The local currency is likely to continue to move within a narrow range in 2025

- Ovais Subhani

When the Government forecast in November 2024 that the Singapore economy would expand at a slower pace in 2025 and inflation dropped to a surprisingly low level the very next month, analysts said it was just a matter of time before the central bank adjusted its monetary policy accordingly.

On Jan 24, the Monetary Authority of Singapore (MAS) shifted its policy stance in favour of a more gradual appreciation of the trade-weighted Singapore dollar.

It also lowered its 2025 forecast for core inflation—which strips out private transport and accommodation costs to better reflect household expenses—to 1 per cent to 2 per cent. This is consistent with what MAS assesses to be low and stable inflation rates.

There was a bit of buzz on social media that the central bank's move could be the beginning of a sustained decline in the Singapore dollar against other currencies.

But no part of the MAS monetary policy statement implied the need for a weak currency, and no financial institution weighed in to say that it was time to dump the Singapore dollar. Hence, the currency market did not blink and the Singapore dollar remained steady at around 1.35 to a US dollar throughout Jan 24.

There is also some confusion about an old concept that weakening the currency can only boost exports.

Countries that export commodities, for example, an oil exporter, might benefit if its own currency is weaker than the currency that oil trades in; in this case, the US dollar.

But Singapore is not a commodity exporter. The bulk of Singapore's exports are high-value manufactured goods—electronics, such as semiconductors and tools that make those chips—and transport equipment, such as parts of aviation engines, oil and gas vessels and offshore drilling rigs.