The Monetary Authority of Singapore (MAS) has decided to keep its monetary policy the same after its meeting on July 30, 2025. They will maintain the current appreciation rate of the S$NEER policy band, without changing its width or central level. Inflation rates for 2025 are expected to average between 0.5% and 1.5% for both MAS core and CPI-All Items inflation. While underlying inflation pressures are manageable, there are still risks. GDP growth in Singapore is expected to slow down in the second half of 2025 after a strong first half. Overall, GDP growth for 2025 is predicted to be around zero percent.

Uncertainties in the Singapore Economy

The Singapore economy faces uncertainties like potential trade conflicts, financial instability, and geopolitical tensions, which could lead to a global economic slowdown. The MAS mainly uses its exchange rate policy, managing the Singapore dollar (SGD) against major trading partners’ currencies, rather than adjusting domestic interest rates. The S$NEER is a trade-weighted index that influences the SGD relative to its main trading partners. The MAS allows the S$NEER to fluctuate within a set band and only intervenes when it breaches this band to ensure stability. This policy band has adjustable parameters: slope, level, and width. By keeping the policy steady, the MAS has set a temporary floor for the Singapore dollar. This decision might have disappointed traders expecting further easing, likely leading to a stronger SGD. In the upcoming weeks, we expect the currency to stay well-supported within its policy band. This stability from the central bank points to limited currency volatility. The MAS has indicated that it will defend the S$NEER policy band, preventing both extreme gains and losses. Therefore, strategies that benefit from low volatility—such as selling straddles on the USD/SGD pair—could be advantageous.

Global Trade’s Impact on Singapore

Singapore relies heavily on global trade, especially with China, which has recently shown improvement. For example, China’s official manufacturing PMI was 50.8 in March 2024, suggesting growth and a potential boost for regional trade. This resilience likely gave the MAS the confidence to pause its easing. However, domestically, growth is expected to moderate for the rest of 2025, which could pressure local stocks. We recommend considering hedging strategies, such as buying put options on the Straits Times Index (STI) or related ETFs. Historically, Singapore’s interest rates, like SORA, tend to follow global trends but with some delay due to the focus on foreign exchange. With the MAS holding steady, we expect local rates may not drop as quickly as in other major economies that are still easing. This could create trading opportunities in the interest rate swap market for those expecting a stable SORA. A key risk comes from any surprises in upcoming economic data, as the market was split on expectations. Singapore’s Q1 2024 GDP grew by 2.7% year-on-year, providing a strong foundation, but any sign of a sharper-than-expected slowdown in the second half could change market sentiment quickly. We will keep a close eye on leading indicators for any shifts in the economic outlook. Create your live VT Markets account and start trading now.

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