INTRODUCTION
1. In its April 2026 monetary policy review, MAS increased slightly the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to the width of the band or the level at which it was centred. Since then, the S$NEER has stayed in the upper half of the appreciating policy band.
Chart 1
S$ Nominal Effective Exchange Rate
GROWTH BACKDROP
2. Global economic activity has been more resilient than anticipated. This in part reflects the retreat in global prices of crude oil, natural gas and related chemical components from their peaks in April. Alternative supplies of oil and gas, as well as the utilisation of existing stockpiles, have thus far tempered the extent of supply disruptions. At the same time, AI-related investments have remained robust, underpinning strong production and trade of IT-related goods and services in some regional economies.
3. In the near term, growth in Singapore’s major trading partners is expected to continue apace. Firm investment spending on technology will sustain activity in the global electronics supply chain. However, energy costs are still elevated compared to a year ago and will contribute further to inflationary pressures worldwide. In turn, weaker real incomes could crimp final consumer demand in some economies.
4. According to the Ministry of Trade & Industry’s advance estimates, growth in the Singapore economy came in at 5.7% y-o-y in Q2 2026, which was stronger than expected. While the disruption to feedstock weighed on activity in a narrow segment of oil-related sectors, this was more than offset by robust growth in the technology-related segments. Most other major sectors grew in line with their trend rates. On a quarter-on-quarter seasonally-adjusted basis, Singapore’s GDP rose by 1.1% in Q2 2026, after expanding by an upwardly revised 1.3% in the preceding quarter.
5. The Singapore economy should continue to grow at a firm pace in the second half of the year. Global AI-related capex spending will buoy activity in Singapore’s technology-related sectors. The construction sector will also be bolstered by a significant pipeline of public and private projects, while the financial sector is expected to expand steadily, underpinned by strong credit growth.
6. The economy’s positive output gap is now forecast to widen slightly in 2026, reflecting the above-trend growth outturns in the first half of the year, as well as the expectation that overall GDP will be sustained at high levels in the near term.
INFLATION OUTLOOK
7. MAS Core Inflation
8. Singapore’s imported costs are likely to rise in the quarters ahead. Higher fuel and electronic input costs will lift prices for upstream and intermediate items such as construction materials, capital equipment and food commodities. Adverse weather conditions in Singapore’s import sources are expected to lower agricultural output and drive up food prices. In comparison, domestic price pressures should be contained. Sustained labour productivity growth, alongside moderating nominal wage growth, should continue to cap unit labour cost increases.
9. MAS Core Inflation is forecast to step up in July and remain elevated into early next year. Electricity & gas inflation will pick up due to higher energy prices, while food and retail & other goods inflation should increase alongside the passthrough of imported costs. For 2026 as a whole, both MAS Core Inflation and CPI-All Items inflation are projected to average 1.5–2.5%. Inflation should ease more discernibly in the second half of 2027 as global energy prices gradually moderate.
RISKS TO THE OUTLOOK
10. There continues to be significant uncertainty around the macroeconomic outlook. Inflation could pick up more strongly than anticipated if energy prices spike anew: fuel reserves have been drawn down significantly and renewed supply disruptions in the Middle East could cause sharp surges in oil prices. Inflation could also be more persistent than projected if robust investment growth generates greater demand spillovers abroad and in Singapore. At the same time, downside risks to the global and domestic economies are still present. An unexpected tightening in financial conditions or pullback in AI-related investment could impact the sustainability of GDP growth, and thus weaken inflation.
MONETARY POLICY
11. The Singapore economy is forecast to record a firm pace of growth for 2026 as a whole, resulting in a widening of the positive output gap. The policy tightening in April 2026, which followed a period of broad S$NEER appreciation in recent quarters, has contributed to a dampening of inflationary pressures in the economy. However, external price pressures are expected to persist and pass through more broadly to domestic consumer prices in the period ahead. MAS Core inflation is projected to step up from July and remain elevated but should moderate discernibly from around mid-2027.
12. MAS will therefore increase the rate of appreciation of the policy band very slightly. The extent of this increase is smaller than that in April. There will be no change to the width of the policy band and the level at which it is centred.
13. In an environment of continued heightened uncertainty, this calibrated adjustment to the policy stance builds on the tightening in April. It sustains an appropriate appreciation path for the S$NEER policy band which will cap inflationary pressures. MAS is well-positioned to respond effectively to any risk to medium-term price stability and will continue to closely monitor economic developments. MAS also stands ready to curb excessive volatility in the S$NEER.
***
[1] MAS Core Inflation excludes the costs of accommodation and private transport from CPI-All Items inflation.
Related:
