Singdollar gains may slow as it nears MAS policy ceiling

The S$NEER was trading 1.71% above the policy band's midpoint, SEB estimated. 

The Singapore dollar has limited room to strengthen further in the near term after the Monetary Authority of Singapore (MAS) kept its monetary policy unchanged in October, according to SEB.

The bank said the Singapore dollar's nominal effective exchange rate (S$NEER) was already trading near the upper limit of MAS's policy band, leaving little room for further gains.

SEB estimated that the S$NEER was trading around 1.71% above the policy band's midpoint following the announcement, with the annual appreciation slope maintained at 1.25%.

This limits the scope for USD/SGD to decline further in the coming months unless the US dollar weakens sharply, it added.

However, SEB expects any pullback in the Singapore dollar to be short-lived, as MAS could resume monetary tightening in 2027 if inflation risks persist.

“The Singdollar should continue to outpace its regional peers,” the bank said. “Year-to-date, it lags only the Korean won and the Chinese yuan.”

Meanwhile, it noted that imported inflation remained elevated and could continue to put upward pressure on consumer prices over the next six months.

It also flagged potential food price increases linked to El Niño and continued uncertainty surrounding energy production and shipments from the Middle East.

"MAS will likely resume tightening in 2027 should upside risks to inflation materialise," SEB said.

MAS expects core inflation to average 1.5% to 2.5% in 2027, compared with its latest forecast of 1.5% to 2% for this year.

“Inflation is expected to moderate over 2027 as import costs ebb and domestic price pressures stay subdued,” the authority said on 14 October.

Meanwhile, GDP growth moderated to 5.4% year-on-year in the third quarter from an upwardly revised 6.2% in the previous quarter.