MAS eases Singapore dollar policy to help economy weather Trump’s tariff storm

(Photo credit: ST File)

Source: The Straits Times

Singapore’s central bank reduced the pace of the local currency’s trade-weighted appreciation in its second such move in 2025, in response to easing inflation and rising risks to economic growth from US President Donald Trump’s tariff barrage.

Inflation has eased, with the Monetary Authority of Singapore (MAS) now expecting core inflation – which excludes private transport and accommodation costs to better represent household expenses – to average 0.5 per cent to 1.5 per cent in 2025, down from the 1 per cent to 2 per cent predicted in January.

“MAS will continue with the policy of a modest and gradual appreciation of the S$Neer (Singapore dollar nominal effective exchange rate) policy band. However, the rate of appreciation will be reduced slightly,” it announced on April 14.

The MAS move was widely anticipated. Analysts believe an easier currency setting may help cap a recent surge in the Singapore dollar’s strength and mitigate some of the price impact on exports from the new tariff.

Analysts, including UOB economist Jester Koh, estimate that the latest easing has slowed down the pace of S$Neer appreciation to 0.5 per cent a year.

The easing in January had already cut the appreciation rate to 1 per cent from 1.5 per cent.

The Singapore dollar edged up 0.2 per cent to 1.3165 per US dollar as at 1pm, after the MAS announcement, following the US currency’s biggest plunge since 2022 last week.

The Singdollar had jumped 1 per cent against the US dollar on April 11, bringing its year-to-date gains to 3.1 per cent against the greenback.

Also on April 14, the Ministry of Trade and Industry (MTI) downgraded its forecast for full-year 2025 gross domestic product (GDP) growth to a range of zero per cent to 2 per cent, from 1 per cent to 3 per cent previously. Singapore’s GDP grew 4.4 per cent in 2024.

MAS said: “Given Singapore’s high trade dependency and deep integration with global supply chains, slowing global and regional trade as well as heightened policy uncertainty will weigh on the external-facing sectors, which could spill over into the domestic-oriented sectors.

“There are downside risks to Singapore’s economic outlook stemming from episodes of financial market volatility and a sharper-than-expected fall in final demand abroad.”

Analysts say the global trade disruption caused by Mr Trump’s off-and-on tariff policy is likely to cost Singapore’s export-driven economy far more than the 10 per cent tariff on exports to the US, which is much lower than China’s 145 per cent rate.

Prime Minister Lawrence Wong has warned that despite the comparatively lower tariff, Singapore’s economic growth in 2025 will be significantly impacted and could tip the Republic into a recession.

The economy may already be skirting a recession, with seasonally adjusted quarter-on-quarter growth – a better gauge of economic activity momentum – shrinking by 0.8 per cent in the first quarter, MTI data showed.

The decline towards recession territory was led by the manufacturing sector, which shrank 4.9 per cent quarter on quarter, followed by construction at minus 2.3 per cent.

Analysts said the real global economic fallout from Mr Trump’s tariff chaos will start to surface in earnest in the coming months if significant progress is not made on the negotiation front between the US and its top trading partners, especially China.

Citibank economist Kit Wei Zheng said Singapore faces the risk of a technical recession – back-to-back negative growth for two quarters – starting with the third quarter of 2025.

The US bank has slashed its 2025 GDP growth forecast for Singapore to 1.4 per cent, and for 2026, to 1.2 per cent.

Mr Zheng said the forecast assumes “a mild three-quarter technical recession” starting in the third quarter of 2025.

“Should second-quarter growth also surprise on the downside, and especially if technical recession is confirmed, this would cement the case for further policy easing in July,” he said.

The latest S$Neer easing follows a similar move made earlier in 2025 as worries over economic growth surfaced. In January, MAS reduced the pace of S$Neer appreciation for the first time since 2020, as core inflation eased.

While a weaker currency may help exports, it will have an opposite effect on the budgets of Singaporeans planning to travel overseas or remit money for the tuition and living expenses of their children studying in universities abroad.

Despite gains against the US dollar, the local dollar has dropped in 2025 by about 5.6 per cent versus the Japanese yen, and 5.5 per cent against the euro.

Still, the Singapore dollar has gained 1.1 per cent versus the British pound year to date, and is up 2 per cent against the Malaysian ringgit.

However, for now, policymakers will zero in all their efforts to avoid a recession that may increase unemployment.

“A more abrupt or persistent weakening in global trade will have significant ramifications on Singapore’s trade-related sectors, and, in turn, the broader economy,” MAS said, adding that the risks to inflation are tilted towards further downside.

UOB’s Mr Koh said MTI’s downgrade implies that the resident unemployment rate could rise to around 4 per cent in 2025, from an average of 2.8 per cent in 2024, and shy of the 4.6 per cent peak seen in the third quarter of 2020 during the Covid-19 pandemic.

He said further deterioration of GDP growth or core inflation might prompt MAS to cut its S$Neer appreciation stance to zero per cent.

A more extreme measure would be to recentre downwards the policy band within which the currency moves – effectively allowing the Singapore dollar to depreciate.

The last time MAS reduced the appreciation rate to zero and recentred the policy band was in March 2020 as the economy headed for its worst recession amid the pandemic.

Mr Koh said a recentring reminiscent of the Covid-19 recession is not UOB’s base case for now.

Still, he added: “Singapore’s economic outlook hinges heavily on the prospects of a US-China trade de-escalation, with externally oriented sectors such as manufacturing, transportation and storage, and wholesale trade likely to bear the brunt of a negative shock to global trade.”