The Monetary Authority of Singapore has announced at its meeting today that it will adjust current monetary policy settings. The MAS pursues its inflation and growth objectives by adjusting the direction, slope, width, and central level of an undisclosed"band" around its measure of Singapore's nominal effective exchange rate. Officials today announced that they will target a slightly reduced pace of appreciation.

GDP data also published today showed a sharp and broad-based contraction in the Singapore economy in the three months to March, broadly in line with trade data showing weakness in exports early in the year. Core inflation has slowed sharply from 1.8 percent in December to 0.8 percent in January and 0.6 percent in February.

In the statement accompanying today's decision, officials highlighted the recent escalation in global trade tensions and the associated market volatility. They expressed concerns that trade tensions will weigh on external demand and that weakness could"spill over into the domestic-oriented sectors", forecasting GDP to grow between zero percent and two percent this year, down from 4.4 percent in 2024. They have also reacted to these developments by lowering their core inflation forecast for 2025 from a range of one percent to two percent to a range of 0.5 percent to 1.5 percent.

Based on this assessment, officials concluded that an adjustment in policy settings was required to ensure medium-term price stability. The MAS has shown in the past a willingness to make unscheduled adjustments to policy settings and officials advised today that they will closely monitor global and domestic economic developments and remain vigilant to risks to inflation and growth.

The Monetary Authority of Singapore conducts monetary policy by managing a trade-weighted nominal effective exchange rate, reflecting Singapore's status as a small and open economy highly dependent on global trade and capital flows. This exchange rate is allowed to fluctuate within a policy band, with officials adjusting the slope, width, and central level of the policy band in order to maintain price stability. Although the MAS does not have an explicit inflation target, MAS officials consider that keeping core inflation just under 2.0 percent is consistent with overall price stability in the economy.

Officials review policy every six months in April and October but are also prepared to make adjustments at other times as required. Adjustments that strengthen the exchange rate are equivalent to a tightening of monetary policy, while adjustments that weaken the exchange rate are equivalent to a loosening of monetary policy.

The exchange rate affects the economy in a significant way, particularly for a small and open economy like Singapore. A stronger exchange rate tends to slow economic activity by making exports more expensive to foreigners, while a weaker exchange rate tends to stimulate economic activity by making exports less expensive to foreigners. The exchange rate also has a direct and indirect effect on prices in the domestic economy, with a stronger exchange rate tending to restrain inflation and a weaker exchange rate tending to push up inflation.