Deutsche Bank-Asia Economic Notes Singapore No MAS tightening in 2026-119191476

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 05/12/2025 01:00:04 GMTDistributed on: 05/12/2025 01:00:04 GMTDeutsche Bank Research Deutsche Bank AG/Singapore IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS. Economics Asia Economic Notes Date 5 December 2025 Singapore: No MAS tightening in 2026 With the MAS approaching/having approached the end of its easing cycle in our view, we have received queries on whether/when the central bank is going to tighten monetary policy. We do not expect the MAS to do so in 2026, and think that policy tightening is more of a 2027 story, if any, when core inflation on average is forecast to rise above the central bank’s soft target. (Figure 1) In this report, we look at the factors underpinning our view, including supply and demand dynamics that may influence core inflation in 2026. Our baseline is that MAS would maintain the current policy settings over 2026 Historically, MAS had typically tightened during (i) robust external and/or domestic demand; (ii) periods of increasing global commodity/oil prices; (iii) tight labor market and high wage growth; and (iv) GST hikes. (Figure 2) As we explain below, the first three factors are expected to moderate in 2026 in our baseline, and there are no further plans for GST increases after the 2-ppt hike recently implemented over 2023-24. Growth is expected to settle at potential in 2026 in the 2-3% range from ~4% this year. The positive output gap should narrow to ~0% of GDP in 2026 from +0.5-1% in 2025. – We think it is unlikely that the MAS would want to tighten policy over 2026 to further derail growth momentum (qoq sa avg +0.9% in 2025, +0.5% in 2026), given Singapore’s economic priority of pushing for a “faster rate of growth” (than 2-3%) over the next few years. Real exports may taper to 3.4% in 2026 from 7.5% this year (Figure 3), alongside moderating global growth and fading of frontloading effects. We also do not expect the AI boom to continue accelerating at 2025’s pace. – The risks to growth are balanced in our view. On the upside, there could be renewed frontloading of trade if sectoral tariffs are imposed, especially in pharma. On the downside, risks to the AI growth story will propagate through the domestic economy fairly quickly, given that it has been one of the main drivers for the outperformance so far. (Figure 4, Figure 5, Figure 6) While we forecast core inflation to increase to 1.7% in 2026 from 0.7% in 2025, this is mainly due to low base effects from this year. Sequentially, the average momentum in 2026 is +0.12% MoM, similar to +0.10% in 2025, thus the inflationary impulse is expected to be fairly limited. We expect the MAS to look past these short-term base effects and focus instead on underlying medium-term drivers of inflation in policymaking. – Global commodity prices are expected to