- The MAS has “very slightly” raised the SGD NEER policy band’s slope.
- The decision was aimed at containing imported inflation amid upside external price pressures.
- Policymakers maintained their 2026 inflation forecasts at 1.5-2.5%, with focus on persistence.
- Positive output gap to widen slightly amid resilient growth.
- The SGD NEER’s annual appreciation should return into the official inflation forecast range.
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Focus on inflation persistence
The MAS’s very slight increase in the appreciation pace of the SGD NEER policy band reflected an ongoing effort to contain inflation amid upside external price pressures and uncertainties. The unchanged 2026 official inflation forecasts of 1.5%–2.5% were in line with our expectations, and aligned with our core and headline inflation forecasts, which we maintain at 2.0% and 2.2%, respectively. We continue to expect core and headline inflation to rise and breach 2.0% yoy from 3Q26, from 1.5% yoy and 1.8% yoy, respectively, in 2Q26. The mid-point of the official inflation forecast range suggested that policymakers expect inflation to rise in the coming months, but do not anticipate a sharp acceleration in price pressures. The rhetoric reflects vigilance regarding inflation persistence.
The MAS expects core inflation to remain elevated into early 2027, and ease more noticeably in 2H27. Discussions remained focussed on upside imported costs, and the resulting pass-through to consumer prices. Any upward volatility in global oil & gas prices, such as that observed in recent weeks amid evolving tensions in the Middle East, poses upside risks to Singapore’s imported inflation. Electricity & gas inflation will pick up in 3Q26 from July, reflecting the lagged effects of the Middle East-driven energy price shock, with the possibility of broader price spillovers as businesses pass on higher utilities costs. Additionally, food inflation rose above 2% yoy in June 2026, the highest rate since end-2024. We are monitoring weather-related disruptions associated with El Nino and their potential upside impact on food inflation, at a time when fertiliser supplies remain constrained by cautious shipping activity through the Strait of Hormuz. The authorities also highlighted adverse weather risks, given food’s significant weight in Singapore’s inflation basket, accounting for 20.4% of the total. In contrast, domestically driven price pressures are likely to remain contained, due to moderate unit labour cost (ULC) growth amid easing nominal wage increases and sustained labour productivity gains.
Calibrating the SGD NEER policy band
Per our model, the appreciation pace of the SGD NEER policy band’s slope likely increased from 1% annually (as of April 14) to 1.25%, more consistent with the 2026 official inflation forecast of 1.5% to 2.5%.
As in the April 14 statement, the MAS reiterated its readiness to curb excessive volatility in the SGD NEER. In our view, this pledge likely kept the SGD NEER consistently about 1.5% above the band’s mid-point since April. This ensured that the SGD NEER, which had been rising in April-July 2025, did not decline alongside the sharp retreat in global crude prices in June 2026, into negative territory in yoy terms.
Today’s calibration should return the SGD NEER’s annual appreciation into the official inflation forecast range. Unlike the rise from the centre to the ceiling of the band in April-July last year, the SGD NEER declined to the mid-point of the upper band in August-November 2025.
SGD NEER policy is in a good place to manage inflation amid a resilient economy. In the event of any shocks to the global economy or financial markets, say from a wider Middle East crisis, the SGD NEER has the flexibility to first respond by easing in the upper half of the band.
We see USD/SGD remaining within this year’s trading range of 1.26-1.30, with a downside bias. With less than 100 days to the US midterms, doubts remain that Fed Chairman Kevin Warsh will hike rates or that President Donald Trump would risk angering voters by pushing a forever war he promised he won’t.
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