Singapore tightens monetary policy in surprise move as rising oil prices rekindle inflation risk

Singapore on Monday unexpectedly tightened its monetary policy for a second consecutive time, moving preemptively against a renewed oil price surge even as inflation at home stays subdued.

The Monetary Authority of Singapore said it will increase the rate of appreciation of the Singapore dollar’s nominal effective exchange rate policy band “very slightly,” with the adjustment smaller than April’s. The width of the band and the level at which it is centered were left unchanged.

Economists polled by Reuters last week had forecast the central bank to stand pat on its monetary policy stance.

Unlike most central banks, the MAS conducts its monetary policy by managing the Singapore dollar exchange rate against a trade-weighted basket of currencies within an undisclosed band, rather than setting interest rates.

“In an environment of continued heightened uncertainty, this calibrated adjustment to the policy stance builds on the tightening in April,” the MAS said in its statement.

“[The] majority was calling for no change in MAS policy this round, so the move was not quite a consensus trade,” Selena Ling, Chief Economist and Head of OCBC Group Research told CNBC, adding that two straight policy tightenings mean the MAS will not become complacent about imported inflation.

Singapore’s core inflation, which excludes accommodation and transportation costs, ticked up to 1.6% in June from 1.4% in May, near the bottom of the MAS’s 1.5%–2.5% forecast range for this year, with headline inflation at 1.9%.

While transportation fuel prices quickly rose since the onset of the U.S.-Iran conflict, softer services inflation, particularly healthcare, communication, and education, helped offset much of the upward pressure on prices, according to BMI, a FitchSolutions company.

“Imported-cost pressures typically pass through to broader consumer prices with a lag, so we still expect inflation to rise in the coming months,” the intelligence group said.

OCBC’s forecast is for headline and core inflation to overshoot to around 2.5% and 2.3%, respectively, in the coming months, adding that inflation may only subside below the 2% mark from the second half of 2027.

Singapore’s near-total reliance on imported energy leaves it exposed to higher oil prices.

Brent crude climbed back above $100 a barrel last week after Houthi militants attacked two Saudi tankers in the Red Sea, deepening a supply threat that had eased before the collapse of the Middle East ceasefire.

The economy has so far shrugged off the turmoil as AI demand powers electronics exports.

Singapore’s gross domestic product expanded 5.7% in the second quarter from a year earlier, beating the 5.5% median estimate in a Reuters survey and well above the government’s full-year projection of 2%–4%.