Key Points
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We expect MAS to maintain its current monetary policy stance at the January meeting, leaving the prevailing S$NEER parameters - slope, width, and centre - unchanged, while reiterating its readiness to act should growth conditions deteriorate sharply. Growth momentum moderated in Q4 but remains resilient, and inflation appears to be bottoming out while staying relatively benign. In addition, heightened geopolitical tensions and increased global rates volatility further support policy steadiness to help anchor inflation expectations.
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Recent economic data have reinforced expectations that growth remains resilient even as momentum softens. Advance estimates indicate GDP grew 5.7%yoy in Q4, accelerating from 4.3%yoy in Q3 and marking the fastest pace since late 2024. Sequentially, GDP rose 1.9%qoq, moderating from 2.4%qoq in Q3 but still reflecting solid momentum. The expansion was driven by a sharp increase in manufacturing activity (+15%yoy), led by pharmaceuticals and AI-related semiconductor and server products. Construction output also rose 4.2%yoy in Q4, while services expanded by 3.8%yoy. For the full year, GDP growth reached 4.8% in 2025, up from 4.4% in 2024.
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Sustaining this pace of growth may be challenging in 2026 amid a shifting global trade environment and rising geopolitical tensions. Nevertheless, AI-related investment is likely to remain firm, supporting electronics production and exports. While the MAS expects the output gap to close in 2026, this implies a transition toward trend growth rather than a sharp downturn. We forecast Singapore’s GDP growth to moderate to 3.2%, still slightly above the government’s upper bound of its 1%-3% growth forecast range.
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Industrial production has remained robust, rising 24.6% in November on a 3m/3m basis, with strong contributions from pharmaceuticals and electronics. Semiconductor output surged 17.6%, underscoring Singapore’s role in global tech supply chains. On trade, non-oil domestic exports (NODX) rose 4% in H2 2025 from H1 2025, extending the 5.7% rise in H1. On a year-on-year basis, NODX grew 6.1% in December, down from 11.5%yoy in November, partly due to unfavourable base effects from a year ago. But electronics exports remained buoyant, rising 24.9%yoy in December and contributing 5.4 percentage points to overall NODX growth.
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Inflation developments have remained contained and broadly aligned with MAS’s outlook. The disinflation seen in 2025 reflected subdued import costs, government subsidies, and moderating unit labour cost pressures. However, the drag from these subsidies will gradually unwind, while services unit labour costs could rise as productivity growth normalises. Recent geopolitical developments, including protests in Iran, the US President’s capture of Venezuelan leader Maduro, and US-EU tensions over Greenland, pose upside risks to import prices. MAS is likely to maintain its view that domestic inflation is bottoming and will rise gradually, but remain contained within the 0.5%–1.5% range.
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Given these factors, the upcoming January decision is expected to reaffirm the existing policy stance. MAS has already eased twice in 2025, and with inflation set to pick up modestly while the economy normalises towards trend growth, the threshold for further policy easing seems high. The uncertain global backdrop also strengthens the case for maintaining a stable S$NEER path to anchor inflation expectations and support financial stability. MAS will likely reiterate its readiness to respond if growth slows sharply or medium-term price stability is threatened but will likely emphasize that the current policy settings remain appropriate.
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External developments since October have added a new layer of uncertainty, particularly regarding the Fed’s independence and increased global rates volatility, especially in Japan’s long-term yields amid concerns about Japan’s fiscal trajectory. Geopolitical tensions have also contributed to fluctuations in energy prices and global risk sentiment. Against this backdrop, SGD has been supported by its status as a regional safe haven currency, backed by Singapore’s fiscal strength, institutional stability, and a credible S$NEER policy framework. CNY stability has also provided a favourable anchor for regional sentiment, supporting SGD resilience. Our estimates indicate that S$NEER has eased from the top of the policy band since July but continues to trade in the upper half of the policy band, reflecting measured and relative resilience.
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The 3-month compounded Singapore overnight rate average (SORA) continued to decline, reaching around 1.14%. This decline reflects ample liquidity, subdued inflationary pressures, and easing fed funds rates. However, current levels may be near the bottom as Singapore’s inflation picks up and excess liquidity gradually unwinds. We expect the 3-month compounded SORA to average around 1.3% in 2026.
