Singapore tightens monetary policy as Iran war fuels inflation risks

The Middle East conflict has upended global growth and inflation trajectories, throwing interest-rate expectations into disarray. As a small trade-dependent hub, Singapore is especially vulnerable to supply-chain disruptions and volatile energy prices.

The Monetary Authority of Singapore (MAS) said it would increase slightly the rate of appreciation of the S$NEER policy band, in line with what most analysts polled by Reuters had expected. MAS said there would be no change to its width and the level at which it is centred.

"There ⁠are considerable risks around the outlook for inflation and growth," MAS said, adding that the Middle East situation "is evolving and remains highly uncertain."

"GDP growth in the Singapore economy will slow over the course of this year, while the output gap should average around 0%," the central bank said.

Of the 13 analysts polled by Reuters ahead of the review, 11 expected the MAS to tighten policy due to the jump in energy prices after the Middle East war erupted late in February and heightened inflation risks. Two forecast no change.

"As higher energy costs pass through supply chains worldwide, a broader range of Singapore's import costs will increase," the central bank said.

Maybank economist Chua Hak Bin said MAS appears to be leaving the door open for another move in the July meeting, depending on how inflation and growth evolve.

"We think the Iran war may impact inflation more than growth, and cannot rule out another tightening move at the July meeting."

The Singapore dollar held broadly steady against the U.S. ‌dollar after ⁠the policy decision.

Growth risks mount as Q1 GDP takes hit

The decision came at the same time as preliminary government data showed the economy grew 4.6% in the first quarter of 2026, weaker than market expectations of a 5.9% pace.

On a quarter-on-quarter seasonally adjusted basis, GDP contracted 0.3% from the fourth quarter of 2025, according to the advance estimates.

Core inflation was 1.4% y/y in February, before the war in the Middle East began. Inflation data for March is due next week.

The trade ministry had previously forecast growth this year at 2% to ⁠4%. MAS said this will be updated in May.

The central bank on Tuesday raised core and headline inflation forecasts for 2026 to 1.5%–2.5%, from 1.0%–2.0% previously.

The government has announced a support package worth almost S$1 billion ($785 million), including cash handouts and fuel vouchers, to counter the economic hit of the war.

The MAS held policy steady at its previous three meetings in ⁠January, October and July. It had eased policy last April.

Instead of using interest rates, Singapore manages monetary policy by letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band, known as the Singapore dollar nominal effective exchange rate, or S$NEER.

It adjusts policy via three ⁠levers: the slope, mid-point and width of the policy band.

Edward Lee, chief economist at Standard Chartered, said MAS' move was measured and underlines the difficult situation facing many central banks with higher prices and supply disruption affecting both inflation and growth.

"We think while inflation will rise further near-term, further monetary policy decisions will be predicated on whether second-round inflation pass-through or inflation expectations become a worry."