SINGAPORE, July 27 — The Monetary Authority of Singapore (MAS) caught markets off guard on Monday, tightening its monetary policy despite widespread expectations that it would hold steady.

The move comes as the central bank seeks to curb persistent inflationary pressures. While a previous tightening in April helped dampen prices, MAS warns that external price shocks continue to bleed through to consumers, CNA reported.

The decision defied a Reuters poll of 16 analysts, where 12 predicted no change and only four anticipated a tightening.

By increasing the rate of appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) policy band, MAS is effectively strengthening the Singapore dollar. Unlike other central banks that rely on interest rates, MAS manages its economy via the exchange rate, allowing the currency to fluctuate against a basket of trading partners within an undisclosed band.

“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,” the central bank said. It confirmed there would be no changes to the width or the centre of the policy band.

This calibrated shift builds on April’s tightening to cap inflation while acknowledging a resilient economic backdrop. MAS projects a firm pace of growth for the second half of the year, though core inflation (excluding accommodation and private transport) is expected to climb from July and remain elevated into early next year.

Fuelling this optimism is a global surge in artificial intelligence. Robust AI-related investments are underpinning strong production and trade of IT goods and services across the region. Domestically, Singapore’s growth is being propelled by AI capital expenditure, a heavy pipeline of public and private construction projects, and strong credit growth in the financial sector.

These drivers are already reflecting in the data. The Ministry of Trade and Industry recently reported that Singapore’s economy grew by a stronger-than-expected 5.7 per cent in the second quarter.

However, the road ahead remains volatile. MAS flagged several risks that could derail price stability.

Energy costs remain high, and the central bank warned that fuel reserves have been drawn down significantly. Any renewed supply disruptions in the Middle East could trigger sharp surges in oil prices. Additionally, adverse weather in key import sources is expected to slash agricultural output, driving up food costs.

While the outlook is currently firm, MAS noted that an unexpected tightening of financial conditions or a sudden pullback in AI-related investment could weaken GDP growth and dampen inflation.

For now, the inflation forecast for both core and headline inflation remains at 1.5 to 2.5 per cent for the year. MAS expects prices to ease “more discernibly” in the second half of 2027 as global energy prices gradually moderate.

Until then, the central bank remains on high alert, stating it “stands ready to curb excessive volatility in the S$NEER” to ensure medium-term stability.