SINGAPORE: The Monetary Authority of Singapore (MAS) tightened monetary policy on Monday (Jul 27), in a move contrary to the market's expectations.

MAS said the Singapore economy is forecast to record a firm pace of growth in the second half of the year, and external price pressures are expected to continue to pass through to consumers.

The central bank said that MAS core inflation, which excludes accommodation and private transport, is projected to pick up from July and remain elevated into early next year.

"MAS will therefore increase the rate of appreciation of the policy band very slightly. The extent of this increase is smaller than that in April," said the central bank in its July monetary policy statement.

It said there would be no change to the width of the policy band and the level at which it is centred.

A tighter policy stance strengthens the Singapore dollar, and can help to reduce imported inflation.

"In an environment of continued heightened uncertainty, this calibrated adjustment to the policy stance builds on the tightening in April," said MAS.

The move sustains an appropriate appreciation path for the Singapore dollar nominal effective exchange rate (S$NEER) policy band, which will cap inflationary pressures, the central bank said.

It added that it is well positioned to respond effectively to any risk to medium-term price stability, and will continue to closely monitor economic developments.

"MAS also stands ready to curb excessive volatility in the S$NEER," it said.

A Reuters poll of 16 analysts found that 12 expected MAS to leave monetary policy unchanged, and four expected tightening, which would see the Singapore dollar strengthen.

In April, the central bank tightened policy by increasing "slightly" the rate of appreciation of the S$NEER policy band. It did not change the width of the band or the level at which it is centred.

Instead of using interest rates like other central banks, MAS manages monetary policy through the exchange rate. It lets the currency rise or fall against currencies of the country's main trading partners within an undisclosed band.

The central bank can change the slope, mid-point or width of the band.

MAS also raised the inflation forecast for 2026 to 1.5 to 2.5 per cent at its April meeting.