Will MAS ease in October?

Welcome to the MUFG Global Markets Asia podcast with Lloyd Chan, Senior Currency Analyst with the MUFG Global Markets Asia Research Team. Today is Tuesday, 7 October 2025, and joining Lloyd to pose some questions on the upcoming MES policy meeting is Jamie Sukakoshi, Head of FX Sales, Global Clients Singapore. The following podcast is for informational purposes only.

It is intended for professional investors and eligible counterparties, and not for retail clients. Any content should not be regarded as an offer to conduct investment businesses or investment recommendations. Okay, afternoon Lloyd.

So after easing twice this year, MES kept its monetary policy unchanged in July. Since then, inflation has eased, and export momentum is showing signs of weakness. So let's start with the big question on everyone's mind.

Will MES ease in October? Good afternoon Jamie. The short answer is probably not.

MES held its policy steady in July, and we expect a similar outcome at the 14 October meeting. While inflation has continued to ease and export momentum is softening, the central bank is signalling a reactive rather than pre-emptive stance. That means they are watching the macro data very closely, but likely not rushing to act unless there is clear evidence of economic deterioration.

Singapore's economy is still showing some resilience. The average industrial production level in July and August was still 3.2% higher than in Q2. While Trump's higher reciprocal tariff on Singapore's trading partners have come into play in August, Singapore's re-exports were still higher in August than the Q1 average.

Non-oil domestic exports have been on the weaker side though, mainly driven by non-electronics shipping. This warrants policy vigilance on how global trade will evolve in the coming months. Meanwhile, the unemployment rate remains low at 2%.

So unless Q3 GDP surprises to the downside, MES is likely to keep the SING dollar nominal effective exchange rate parameters unchanged in October. Do keep an eye on Q3 and Q4 GDP data where any downside surprise could shift the policy tone heading into 2026. Also recall that MES had already delivered policy easing in January and April, so there is now a sense that some policy accommodation has already been delivered.

On the inflation front, the picture remains big nine, with core CPI slowing to just 0.3% year-on-year in August. However, it may not be enough for MES to resume policy easing in October. Deadline CPI inflation averaged 0.8% year-on-year in the first 8 months of this year, while coin inflation averaged 0.6%.

The rate of inflation remains within the MES inflation projection of 0.5% to 1% this year. Importantly, the central bank has not revised its inflation outlook despite the low August CPI reading. The central bank still sees two-way risk in inflation.

On the upside, geopolitical shocks could lift commodity prices, while on the downside, weaker-than-expected domestic growth could further suppress price pressures. Thanks Lloyd. So I guess ultimately no change for now is our outlook.

Next question is, in the age of all these tariffs, President Trump's new announcement of a sectorial tariff. This includes a 100% tariff on pharmaceutical imports, and could have a significant implication for Singapore's exports to the US. How might this influence MES's policy decisions in the months ahead?

Right, so President Trump has announced a 100% tariff on pharmaceutical imports. This adds a layer of uncertainty to Singapore's external outlook. Importantly, pharmaceuticals account for over 11% of Singapore's non-oil domestic exports, and nearly 2.8% of GDP, among the largest in the region.

But here's the nuance. Many major drug makers in Singapore have US facilities, or are building capacity there, which could qualify them for exemptions. So the immediate impact may be cushioned.

Still the broader risk is pretty clear, sectorial tariffs are rising, and Singapore's discussions with the US around semiconductor exports are still in early stages. Imports on pharmaceutical exports may not have even started yet. So any sharp escalation of trade tensions, or a notable deterioration in trade, could potentially prompt a shift towards further MES easing in the months ahead.

Thanks Lloyd. I guess Singapore is always exposed to being such an open economy. I think the last question, and the magical question, what's your outlook for the dollar sink?

Keeping this on this considerations. The Singapore dollar has so far held up relatively well, up by more than 5% against the US dollar year-to-date. Our estimate of the Singapore dollar nominal effective exchange rate has weakened since mid-August, but it remains about 1%, above the midpoint of MES FX policy band.

So with the Fed expected to continue cutting rates, and the dollar likely to soften, we still see room for dollar sink to drift lower towards the 1.27 level by year-end. However any sink dollar upside is likely modest. Trade tensions, especially around pharmaceuticals and semiconductors, could still limit gains and introduce downside risk.

So with sink dollar increasingly attractive as a funding currency, dollar sink volatility remaining low relative to history, and domestic inflation likely staying subdued, there appears to be a strategic opportunity to hedge against potential sink dollar weakness, resulting from trade-related risks going into 2026. Fantastic. Lloyd, thank you so much for your time, and thanks everyone.

Speak soon. Thank you for listening to the MUFG Global Markets Asia podcast. Read, review and subscribe on Apple, Spotify, or wherever you subscribe to your podcasts.

Contact your MUFG sales representative for more information. Check back again for more insights from the Global Markets Research Team.