MAS' October Hold: An expected pause, an unchanged investment case

A measured pause as inflation remains contained and labour demand softens

MAS’ October policy review on 14 October left the slope, width and centre of the S$NEER policy band unchanged, in line with our view set out in our August inflation update. The April and July tightenings had already steepened the appreciation path, while the data accumulated since July did not justify a third consecutive adjustment.

Core inflation has picked up, with August CPI rising to 2.2% year-on-year (YoY), its highest level since September 2024. However, the broader trend remains contained, with core inflation averaging 1.6% year-to-date. This remains within the lower half of MAS’ revised 2026 core inflation forecast of 1.5–2.0%, which was narrowed from 1.5–2.5%.

Related article: Singapore’s core inflation firmed again in August. Here’s why we remain constructive on SG equities.

Energy costs provide further support for the pause. The 4Q26 electricity tariff fell 10.4%, from 31.91 to 28.59 cents per kWh, reflecting lower natural gas prices between July and mid-September. This eases a key source of cost pressure for households and businesses. However, the September escalation in the Middle East largely falls outside the tariff’s reference period, leaving renewed energy price increases as a risk to monitor.

The labour market also points to a more measured policy approach. Second-quarter retrenchments rose to 4,620, the highest since 4Q20, while the six-month re-employment rate for retrenched workers fell from 60.7% to 54.9%. Job vacancies declined to 68,600. Although total employment grew for a 19th consecutive quarter, the softening in labour demand argues against additional tightening without clearer evidence of persistent inflation.

The policy signal: An unchanged stance, with the next move data-dependent

The October hold does not signal a retreat from MAS’ inflation objective. The existing appreciation slope continues to strengthen the S$NEER, helping to contain imported inflation and ease price pressures in 2027. With the current policy setting still working through the economy, another increment was not necessary.

Government messaging ahead of the decision was consistent with this approach. Prime Minister Lawrence Wong rejected weakening the Singapore dollar to improve competitiveness, emphasising that the currency should reflect economic fundamentals and that Singapore competes on stability, capabilities and predictability rather than cost. This reinforces the policy emphasis on maintaining currency stability and purchasing power rather than pursuing export competitiveness through a weaker exchange rate.

Looking ahead, MAS is likely to retain a gradual, data-dependent approach. A further tightening would require clearer evidence that inflation risks are building again. Looking ahead, MAS has flagged upside risks from a sharp surge in energy or food prices and AI-related spillovers that lift unit labour costs. We would also watch for core inflation moving towards the upper end of MAS’ 1.5–2.0% forecast range. Until these risks translate into more persistent inflationary pressures, the existing appreciation path gives MAS room to wait for further evidence.

Sector implications: Banks remain supported, while S-REITs and SMIDs require selectivity

The Singapore dollar’s policy-anchored appreciation path reinforces the country’s appeal as a wealth management hub. A stable currency, well-established financial infrastructure and a supportive regulatory environment reinforce Singapore’s appeal as a global wealth management hub, attracting international capital and supporting demand for its financial services. Private banking client assets have grown 50% over five years and 15% in 2024–2025 alone. MAS is also reviewing greater flexibility for single family offices, while the industry has committed to reducing median account-opening time to within one month by end-2026.

These developments support continued growth in wealth management, a meaningful source of non-interest income for Singapore’s three local banks. The firmer interest-rate backdrop provides an additional earnings tailwind. The US Federal Reserve raised rates in September for the first time since 2023, while three-month compounded Singapore Overnight Rate Average (SORA) has risen from its May low. Together, these developments support the outlook for net interest margins and net interest income, allowing interest income and fee income to contribute to earnings growth simultaneously.

Related article: Singapore banks: Sell-off tests the rally, but fundamentals hold

The outlook is less favourable for Singapore real estate investment trusts (S-REITs). The higher-for-longer interest rate environment keeps refinancing costs elevated, weighing on distributions and valuations. A firmer Singapore dollar offers limited direct relief, making balance-sheet strength and debt management important differentiators. We continue to favour a selective approach, focusing on REITs with healthy balance sheets and sub-sectors supported by structural demand rather than the interest-rate cycle. The broader impact on the STI remains contained, as bank earnings and industrial growth provide offsets.

Related article: S-REITs: Selectivity remains key as 1H26 earnings confirm an uneven recovery

For small and mid-cap stocks (SMIDs), the impact of higher-for-longer rates and a firmer Singapore dollar varies by business model and balance-sheet strength. Higher rates raise refinancing costs and increase the discount rate applied to future earnings, putting greater pressure on leveraged companies and stocks whose valuations already price in rapid growth. Currency appreciation also has mixed effects. Exporters earn less in SGD when foreign-currency revenues are translated back, while domestically oriented businesses can benefit from lower imported input costs. The gradual pace of appreciation gives companies more time to adjust pricing and hedging strategies.

Earnings resilience therefore becomes more important. SMIDs with visible order books, low gearing and sufficient pricing power are better positioned to absorb these pressures. Domestic infrastructure spending supports selected construction companies, while semiconductor supply-chain and data-centre businesses continue to benefit from global AI capital expenditure.

Market reforms provide additional support for Singapore equities. The Equity Market Development Programme (EQDP) has allocated SGD 5.4 billion across 14 managers, while SGD 20 million has been committed to market making for around 80 SMID stocks. These measures aim to deepen market liquidity and broaden investor participation. However, following substantial share-price gains among many SMIDs this year, further upside will increasingly depend on earnings delivery, placing greater emphasis on company fundamentals and stock selection.

A differentiated, income-rich market reinforces our constructive view

MAS’ decision to pause after two pre-emptive tightenings reflects a policy approach that responds to emerging inflation risks without tightening beyond what the data warrant. The existing appreciation path continues to anchor inflation expectations and reinforce Singapore’s standing as a stable destination for capital.

The investment case also rests on diversification. Global equity returns have become increasingly concentrated in AI and technology stocks. While the AI investment cycle continues to create growth opportunities, greater concentration increases exposure to sector-specific volatility. The STI’s composition, anchored by banks, industrials and REITs, offers a differentiated source of returns while retaining indirect exposure to AI-related capital expenditure through Singapore’s broader economy. This profile has been evident during technology-led market sell-offs since July, when South Korea, Japan and Taiwan experienced sharper declines while the STI remained resilient.

Dividend income adds another layer of appeal. The STI offers a projected dividend yield of 4.0–4.3% over 2026–2028, providing a meaningful income component alongside capital appreciation. For foreign investors, a firmer Singapore dollar can further enhance total returns through currency gains, in addition to dividends and share-price appreciation.

Related article: Singapore Outlook 4Q26: Earnings and income carry the STI as reforms run further

Our stance remains unchanged. We maintain our 4.0-star “Very Attractive” rating on Singapore equities and our STI target of 6,223 by end-2028. For broad, low-cost exposure to the STI and its dividend income, we recommend the Amova Singapore STI ETF (SGX: G3B). Investors seeking exposure to quality small and mid-cap companies beyond the STI’s 30 constituents can consider the iFAST-Amova Singapore Equity Fund.

Related article: Beyond the blue chips: Why iFAST-Amova is our pick over the EQDP funds

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.