The Singapore Dollar (SGD) has long been a symbol of the country’s economic strength and stability. The currency has appreciated significantly over the past 60 years, reflecting Singapore’s transformation into a global financial hub.
Today, like many open economies, the strength of the SGD is mainly influenced by monetary policy. In Singapore, this is managed not through interest rates but through the exchange rate.
The Monetary Authority of Singapore (MAS), Singapore’s central bank, steers monetary policy by managing the Singapore Dollar Nominal Effective Exchange Rate (S$NEER)—a trade-weighted basket of currencies reflecting Singapore’s external competitiveness.
In January 2025, the MAS announced a slight reduction in the slope of its policy band. In simple terms, this means a shift towards a more accommodative stance.
Why the change?
Why MAS Eased Monetary Policy in January 2025?
The key reason was inflation. Core inflation in Singapore, which excludes accommodation and private transport, was projected to come in lower than expected. Economists now forecast core inflation to range between 1.0% and 2.0% in 2025, compared to the previous estimate of 1.5% to 2.5%.
Against this backdrop, MAS adjusted its policy band, signalling that slower currency appreciation could help support growth without stoking inflation.
Even before the MAS announcement, the Singapore Dollar had already weakened against the US Dollar. In October 2024, the SGD was trading at a 10-year high of 1.27 per USD. By the end of January 2025, it had slipped to around 1.35 per USD.
But this decline wasn’t purely domestic.
A big driver was the external environment, particularly the election of Donald Trump as US President. His win led to a surge in the US Dollar as global investors sought refuge in the greenback, viewing it as a safe haven amid rising geopolitical uncertainty.
Will The Singapore Dollar Weaken Further?
The SGD has actually strengthened since the easing position initiated by the MAS in January 2025.
Currently, the Singapore Dollar trades at 1.34 to the US Dollar and has strengthened in recent weeks (it was trading at 1.37 in January 2025), as the Singapore economy’s growth came in better than expected in the fourth quarter of 2024.
In fact, initial estimates had factored in a growth of 4.3% in Q4 2024 for the Singapore economy, but data released in the middle of February by the Ministry of Trade and Industry (MTI) showed that the Singapore economy grew by 5% in the period, way above expectations.
Lower Core Price Rises Are Supporting Easing Stance By MAS
That positive economic backdrop has been helped by another low inflation reading for January. Core inflation in the Singapore economy dropped to 0.8% year-on-year last month, down from the 1.7% year-on-year expansion seen in December 2024.
That double positive—a still-strong economy along with lower inflation—is proving to be a tailwind for the Singapore Dollar’s strength and has actually meant that the currency hasn’t weakened as much as would be expected given the MAS’s easing stance.
Furthermore, the latest Budget 2025 also saw a slew of handouts for Singapore residents that should help boost local consumption and was a positive sign for the economy.
What The Latest U.S. Tariffs Mean For Singapore, And The Singapore Dollar
Like any open and trade-dependent economy, Singapore is deeply exposed to global economic shifts. One major new development is the announcement of sweeping tariffs by the United States, which will impact many of its trading partners—including Singapore.
Starting 5 April 2025, all goods imported into the U.S. from Singapore will face a baseline 10% tariff. While this rate is lower than the tariffs imposed on many other Asian countries, it still marks a significant change in Singapore’s trade relationship with its largest non-Asian trading partner. How that will affect our export to the US is anyone’s guess.
The broader concern, however, lies in the ripple effects of escalating trade tension, particularly between the U.S. and China. Higher tariffs on a global scale risk disrupting supply chains, raising costs and weakening global trade flows. For Singapore, these indirect effects could weigh on economic growth, even if it’s not the main target of the tariffs.
For the SGD, it’s value will be influenced by both domestic economic indicators and external factors. If global trade slows down due to increased tariffs, there could be downward pressure on the SGD. Conversely, if Singapore is perceived as a stable and resilient economy amidst global turmoil, the SGD might strengthen as investors seek safe-haven assets.
The recent U.S. tariff decisions and subsequent retaliatory measures have the potential to reshape global trade patterns. Singapore, with its open economy, may face indirect impacts from these developments. The Monetary Authority of Singapore (MAS) will likely monitor these external factors closely to adjust monetary policy as needed to maintain economic stability and support the SGD.
Read Also: Why The S&P 500 Index & NASDAQ Composite Have Been Performing Poorly In The Past Month?
Photo Credit: iStock/Wara1982
The post What Does The Easing Of Singapore’s Monetary Policy Mean For The Singapore Dollar? appeared first on DollarsAndSense.sg.
