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The Monetary Authority of Singapore (MAS) kept all three parameters of its SGD NEER policy band (slope, mid-point, and width) unchanged during its October 2024 review. Amid improving economic growth in 3Q24 and steady expansion that is seen as close to its potential trajectory in 2025, the central bank’s unchanged prevailing rate of appreciation of the SGD NEER policy band aims to bring core inflation down to 2% (the mid-point of its 1.5–2.5% forecast range) in 2025 from its average projection of 2.5–3.0% in 2024.

Favourable economic growth prospects, but with downside uncertainties

Singapore’s economic growth strengthened significantly in 3Q24, according to advance estimates (AE) released alongside the MAS’s decision, supporting the favourable prospects for 2024. Real GDP growth accelerated by 2.1% quarter-on-quarter seasonally adjusted (QoQ sa) in 3Q24, marking the fastest sequential expansion since 1Q21. This translated to a pick-up in economic growth to 4.1% year-on-year (YoY) in 3Q24, the highest in two years. The robust overall performance was primarily driven by a powerful boost to manufacturing output. External-oriented services sectors, such as trade-related services and modern services, registered still-resilient growth.

We are raising our 2024 and 2025 real GDP growth forecasts for Singapore to 3.5% and 2.8%, respectively (from 2.7% and 2.5%). Resilient external demand should continue to support the expansion of Singapore’s external-oriented sectors in the coming quarters. Our 2025 growth forecast is in line with the MAS’s expectation for the economy to expand at close to its potential rate next year, which we see as 2-3% over the medium-term. Barring significant negative shocks from uncertainties such as lingering geopolitical and trade tensions that could disrupt global production, we expect the global economic expansion to likely hold up. Global growth will be supported by anticipated continued interest rate cuts, particularly by the US Fed following its sizeable reduction in September 2024 and the European Central Bank, as well as by the Chinese authorities’ combined monetary and fiscal policies aimed at shoring up China’s economy.

Continued inflation easing into 2025

The MAS expects inflation to continue easing into 2025, with our forecasts in line with the authorities’ updated projections for 2024 and 2025. Headline (CPI-All Items) and Core inflation are on track to ease to our average forecasts of 2.4% and 2.9% in 2024, respectively, as well as 2.0% and 1.8% in 2025.

During the MAS’s October 2024 policy review, it narrowed its average headline inflation forecast for 2024 to around 2.5%, from 2.0–3.0% previously. It anticipates a 1.5–2.5% range for 2025. The authorities also expect core inflation to moderate further to around 2% YoY by end-2024, averaging between 2.5–3.0% for the full-year, from 2.5–3.5% previously, before settling around the mid-point of its 1.5–2.5% range in 2025.   

SGD NEER policy scenarios for 2025 and implications for USD/SGD

As of now, there is no immediate need for the central bank (MAS) to alter the appreciation pace of the SGD NEER policy band. Our model indicates that the NEER has been consistently fluctuating within 1.5-2.5% over the past year, aligning with the official forecast for CPI-All Items and Core inflation for 2025. With the recent better-than-expected advance GDP growth of 4.1% YoY in 3Q24, MAS anticipates the negative output gap to close in 2H24, with full-year growth near its potential rate or the top of 2-3%, this year’s official forecast. Therefore, the current appreciation pace of the NEER remains relevant to lower core inflation to 2% by end-2024.

We infer two possible scenarios from the statement regarding the circumstances and conditions needed to loosen the SGD NEER policy band in 2025.

A constructive scenario will slightly reduce the appreciation pace of the SGD NEER policy band on more disinflation, pushing the 2025 inflation forecast lower to a historically comfortable range. The world economy would also need to remain resilient, underpinned by a soft landing in the US economy from easing financial conditions, a more stable Chinese economy from the recent stimulus, and a sustained upswing in the electronics and trade cycles.

Under the constructive scenario, which is also our base case, we see USD/SGD moving into a lower 1.25-1.30 range in 2025. This outlook is based on our expectation for the DXY Index to decline into a 95-100 range from 200 bps of Fed cuts between now and 3Q25 to 3%. Although the Ministry of Trade and Industry has yet to announce its 2025 growth forecast, the MAS expects it to be close to the 2-3% potential rate.

The second scenario, which is undesirable and driven by an abrupt downturn in the global economy, is another possibility. Past examples, such as the 2008 Global Financial Crisis and the 2020 Covid-19 recession, have seen MAS shift to a zero-appreciation pace of the policy band and re-centred the band lower. This was in anticipation of an abrupt decline in costs and prices that materially lowered domestic inflation. The world is awaiting the US Presidential elections on November 5 for more clarity on America’s policy directions. For example, under a Trump 2.0 presidency, higher tariffs on China and other economies and a stronger USD from wider fiscal deficits reigniting inflation could push USD/SGD higher towards and above 1.35.


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Chua Han Teng, CFA

Economist - Asean

[email protected]

Philip Wee

Senior FX Strategist - G3 & Asia

[email protected]

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