Singapore Central Bank Surprises With Policy Pause — 2nd Update

By Megan Cheah and Amanda Lee

SINGAPORE--Singapore's central bank unexpectedly held off on further tightening as year-over-year economic growth slowed in the third quarter but beat forecasts.

The Monetary Authority of Singapore said Wednesday that its existing policy settings would allow the Singapore dollar to keep strengthening, helping to counter an expected near-term rise in import prices and ease inflationary pressures in 2027.

Only one of 11 economists polled by The Wall Street Journal had expected the central bank to hold policy steady. The other 10 had expected further tightening.

The Singapore dollar weakened slightly against the greenback after the decision. The U.S. dollar was 0.1% higher at 1.2803 Singapore dollars, LSEG data showed.

Gross domestic product grew 5.4% in the July-September quarter from a year earlier, according to advance estimates released Wednesday by the Ministry of Energy, Trade and Industry. That was slower than the second quarter's revised 6.2% growth but above the 5.1% forecast in a WSJ poll.

On a seasonally adjusted basis, GDP expanded 1.1% from the previous quarter, slowing from a revised 1.5% in the second quarter and falling short of the 1.3% forecast in the WSJ poll.

Singapore has benefited from strong global investment in artificial intelligence, which has fueled demand for its semiconductors and chipmaking equipment. Disruptions from the Middle East conflict, however, have weighed on parts of the economy.

The MAS said it expects growth to remain strong in the coming quarters before slowing as the AI boom moderates and global financial conditions tighten. A larger-than-expected rise in interest rates or a sharper pullback in AI-related investment could weigh on growth, it said.

The central bank uses the exchange rate rather than interest rates as its main policy tool because trade plays a significant role in Singapore's economy. It manages the Singapore dollar against an undisclosed basket of trading partners' currencies, allowing it to fluctuate within a policy band.

On Wednesday, the MAS kept the band's slope, width and center unchanged, maintaining the pace at which it allows the currency to strengthen.

The central bank increased that pace in April and again in July to curb inflation. July's adjustment was smaller than April's, which marked the first tightening in more than three years.

The latest decision suggests the MAS is comfortable giving earlier measures more time to work rather than responding aggressively to every inflation risk, Saxo's Charu Chanana said in a note.

She sees the decision as a pause rather than a pivot. The central bank's tightening earlier in the year likely still provides some protection against imported inflation, she said.

The MAS revised its inflation projections for this year. It now expects core inflation, which excludes accommodation and private road transport costs, to average 1.5%-2.0% and overall inflation to average around 2.0%. It expects both measures to average 1.5%-2.5% in 2027.

"Core inflation is projected to ease discernibly from the middle of next year, as supply-driven imported inflation slows and domestic costs stay subdued," it said.

Still, inflation could remain elevated if the AI boom's effects spread more widely through the economy and labor costs per unit of output rise faster, the MAS warned.

The central bank said it remained "well-positioned to respond effectively to any risk to medium-term price stability."

DBS's Philip Wee and Chua Han Teng said the pause likely reflected a softer-than-expected inflation outlook for 2026, but the MAS is likely leaving the door open for further tightening if needed.

The U.S. dollar has remained within a range of S$1.26-S$1.30 despite the MAS's two tightening moves and the Federal Reserve's September rate increase, the DBS analysts said.

Write to Megan Cheah at megan.cheah@wsj.com and Amanda Lee at amanda.lee@wsj.com

(END) Dow Jones Newswires

October 14, 2026 01:17 ET (05:17 GMT)