Singapore Dollar: Labour slack limits MAS tightening risk – UOB

UOB’s Jester Koh assesses Singapore’s soft labour market and its implications for Monetary Authority of Singapore policy. The Labour Market Pressure Index shows rising slack, which UOB links to weaker passthrough of supply-side shocks into inflation. As a result, UOB expects MAS to keep current S$NEER settings, while flagging only limited risk of further slope steepening to counter imported inflation.

Labour slack tempers MAS tightening risks

"In our base case, we expect MAS to maintain its current S$NEER policy settings, with the slope remaining at estimated 1.25% p.a., following two tightening moves in Apr and Jul this year."

"Nevertheless, we acknowledge the risk of a further "very slight" slope steepening (i.e. 25bps) in either the Oct 2026 MPS or Jan 2027 MPS to address imported inflation risks, particularly amid the recent reacceleration in energy prices and strengthening food inflation momentum, with adverse weather events posing additional upside risks to the latter."

"This reflects repeated downside surprises in core inflation."

"Our LMPI exhibits a strong correlation with both core and services inflation, suggesting that pockets of weakness in the labour market could temper the extent of the passthrough of supply-side shocks into consumer prices, including energy shocks stemming from the Middle East conflict and food inflation pressures arising from a looming Super El Niño."

"As such, these shocks may not necessitate the aggressive pace of MAS tightening seen in 2021-2022, when policy was tightened five times, including three upward re-centring moves."