Singapore Monetary Policy Outlook: Hold Now, Bias Turns Hawkish

Executive Summary

Singapore is approaching a policy inflection point. While the Monetary Authority of Singapore (MAS) is widely expected to hold policy unchanged at this week’s review, the balance of risks is shifting decisively toward a hawkish pivot in 2026.

Stronger-than-expected growth, firming core inflation momentum, and sustained Singapore dollar strength suggest policy accommodation has largely run its course. However, MAS is unlikely to tighten prematurely, preferring signalling over action at this stage.

Our base case: Hold now, hawkish guidance, tighten later.

Macro Backdrop: Why the Bias Is Turning

Growth Has Outperformed

• 2025 GDP: +4.8%, far above earlier expectations

• Q4 2025 growth: +5.7% YoY, led by electronics, pharmaceuticals, and resilient consumption

• Output gap is closing faster than anticipated

Inflation Momentum Is Rebuilding

• Core inflation has remained elevated for three consecutive months

• Services-driven pressures (healthcare, education, food) are sticky, not transitory

• MAS has already flagged that 2026 inflation will be higher than 2025 — an unusually explicit signal

Financial Conditions Are Tightening on Their Own

• SGD is up ~6% YoY, near multi-decade highs

• STI is at record levels

• Strong FX + equity markets reduce the need for policy support

Policy Assessment: Why MAS Holds — For Now

MAS operates via the S$NEER band, not interest rates. Tightening can occur through:

1. Steeper slope (hawkish)

2. Higher midpoint (hawkish)

3. Narrower band (hawkish)

Despite improving conditions, MAS is likely to:

• Avoid abrupt tightening while global policy divergence remains high

• Maintain optionality ahead of Feb 12 Budget

• Wait for clearer confirmation that inflation momentum is persistent, not episodic

This argues for hawkish communication before hawkish action.

MAS Policy Scenarios (12-Month Horizon)

Bull Case (25%) – Earlier Tightening

Policy

• MAS steepens S$NEER slope as early as April

• Core inflation surprises toward 2% faster than expected

Market Impact

• SGD strengthens further

• Bond yields drift higher

• STI leadership narrows to defensives and banks

Positioning

• Overweight SGD

• Underweight duration

• Neutral equities, rotate to financials

Base Case (55%) – Hold, Then Tighten in 2H 2026

Policy

• MAS holds in January

• Signals upside inflation risks

• Tightens July–October 2026

Market Impact

• SGD remains firm but orderly

• Equities supported by earnings, not multiple expansion

• Bonds range-bound

Positioning (Preferred)

• Neutral SGD (hedged)

• Balanced equity exposure

• Barbell fixed income (short + selective long)

Bear Case (20%) – Growth Shock / Policy Delay

Policy

• External shock (trade, geopolitics) cools demand

• MAS stays neutral longer, no tightening in 2026

Market Impact

• SGD softens modestly

• Equities correct but remain structurally supported

• Bonds rally

Positioning

• Add duration

• Defensive equities

• Reduce cyclical exposure

Singapore Asset Allocation Implications

Equities

• Earnings > valuations from here

• Prefer:

  • Banks (benefit from firm FX, stable credit)

  • Industrials tied to electronics cycle

  • Quality defensives

• Avoid chasing high-beta cyclicals

FX

• SGD strength is structural, not speculative

• Limited downside unless global risk breaks sharply

• Best used as a portfolio stabiliser, not a momentum trade

Fixed Income

• Curve offers poor risk-reward for outright duration

• Prefer:

  • Short-duration SGD credit

  • Selective long-end exposure as hedge

Bottom Line

Singapore is not tightening yet, but it is no longer easing in spirit.

Policy risk in 2026 is one-sided toward tightening, not loosening. For investors, this argues for:

• Discipline over leverage

• Earnings quality over valuation stretch