MAS focus turns to inflation risk amid Singapore's strong growth trajectory

If the damage from a volatile US trade policy remains contained, there is a good chance that Singapore’s economic growth in 2026 will come in strong enough to shift inflation into higher gear.

- Ovais Subhani Senior Business Correspondent

The pace of growth will be relatively slow - after running above 4 per cent in the past two years - but household spending and the job market are likely to remain steady, with industrial production at near full capacity.

In fact, the Monetary Authority of Singapore (MAS) expects unit labour cost to rise in 2026. Higher wages would further support private consumption.

Experts believe that is a recipe for higher core inflation, a gauge of changes in prices of goods and services households regularly use.

A growing cohort of economists expect MAS to boost its defences against inflation by tightening its Singapore dollar policy in 2026, though the move is unlikely to come as soon as Jan 29.

They argue that if the damage from a volatile US trade policy remains contained, there is a good chance that Singapore’s economic growth in 2026 will come in strong enough to shift inflation into higher gear.

A minority of analysts predict that the MAS may move to tighten policy as soon as this week when it is scheduled to release its quarterly monetary policy statement on Jan 29.

MAS on Jan 23 said both core and all-items inflation are projected to rise in 2026 from their low rates in 2025, and they would be updated in its upcoming monetary policy statement on Jan 29.

Analysts said the possibility of MAS upgrading its inflation forecast would signal a reversal of its easing policy bias from 2025.

“Since 2010, MAS has tended to tighten its foreign exchange policy when core inflation forecasts for the current year were upgraded,” said Mr Ang Kai Wei, the Singapore-based Asean economist at Bank of America, who now expects MAS to tighten its Singapore-dollar policy on Jan 29.

Expectations of a tighter policy are already pushing up the trade-weighted Singdollar - which MAS refers to as the nominal effective exchange rate (S$NEER) - that measures its strength against currencies of major trading partners.