Central bank cites low rates and AI-driven demand but cautions on energy supply risks and inflation.

Loan Growth Outlook

Singapore’s loan growth will remain resilient in the early months of 2026 before moderating later in the year, according to the Monetary Authority of Singapore (MAS). The central bank’s projection, outlined in its February 2026 financial services market review, reflects a tug-of-war between supportive macroeconomic conditions and emerging headwinds. Lower interest rates are expected to continue supporting loan demand in the near term, but the MAS anticipates that momentum will ease as the economic outlook becomes more cautious over subsequent quarters, according to the FPA Financial report. This trajectory marks a shift from 2025, when loan growth proved stronger than initially forecast amid a broader-than-expected economic expansion.

Key Drivers for Early 2026

A low-interest-rate environment, driven by expectations that the U.S. Federal Reserve will hold rates steady, encourages borrowing and sustains loan demand particularly in the early part of 2026, the MAS stated in its market review. The 3-month compounded SORA, a key benchmark, remains at levels that support both consumer and business credit extension.

Beyond monetary conditions, global AI-related capital expenditure spending and resilient regional electronics production continue to sustain activity in Singapore’s technology-related sectors, according to the MAS’s April 2026 monetary policy statement. A steady pipeline of domestic public infrastructure and housing investment further bolsters domestic demand, the central bank added.

Private-sector economists have turned more optimistic about the Republic’s 2026 growth trajectory. The median expectation in the MAS quarterly survey released in December 2025 stands at 2.3% for full-year 2026, revised up from 1.9% in the September 2025 survey. This sits in the upper half of the Ministry of Trade and Industry’s (MTI) 1–3% forecast range issued in November 2025. Maybank economist Chua Hak Bin attributed the upgrade to “a construction boom, capital expenditure related to artificial intelligence, and falling interest rates,” noting that “the AI boom will likely broaden and lift exports, investment and tech services activity.”

Headwinds and Risks

Despite these early tailwinds, a complex of supply-side shocks and inflationary pressures is expected to slow loan growth as 2026 progresses. The accumulated energy supply shortfalls and higher input costs from the Middle East conflict will continue to weigh on the outlook for the Singapore economy, the MAS warned in April. Shipping through the Strait of Hormuz has been severely constrained since late February, with worldwide prices of crude oil, natural gas and related chemical compounds rising sharply. Asia has seen physical shortages and increases in import prices, according to the MAS.

The economic data already signals a deceleration. Singapore’s GDP grew 4.6% year on year in the first quarter of 2026, down from 5.7% in Q4 2025, according to MTI advance estimates. On a quarter-on-quarter seasonally adjusted basis, the economy contracted 0.3% in Q1 2026, a sharp reversal from the 1.3% expansion in the prior quarter. MTI noted that “while GDP growth remained resilient in the first quarter of 2026, the US-Israel-Iran conflict that began in end-February may weigh on economic activity in the coming quarters.”

GDP Growth (y-o-y) (%)Source: Orionmano Industries

Inflation is compounding the growth moderation. The MAS raised its core inflation forecast to 1.5–2.5% from 1.0–2.0% previously, driven by energy price shocks. Private transport inflation is expected to increase due to higher fuel prices, though this will be offset to some degree by subdued accommodation inflation amid weaker housing rental growth, the central bank said. Higher inflation will erode real incomes and crimp final demand in the quarters ahead, the MAS warned in its April monetary policy statement.

In response, the MAS tightened monetary policy in April 2026, allowing for a stronger Singapore dollar to curb imported inflation, according to reports from The Straits Times and CNA. The central bank maintained a modest and gradual appreciation path for the Singapore dollar nominal effective exchange rate policy band but adjusted its slope and width. Maybank economist Chua Hak Bin, cited in the MAS survey, noted that “recent higher inflation may have increased the risk of MAS tightening,” adding that he “sees a greater risk of MAS tightening policy, rather than loosening it.”

The trajectory of loan growth will hinge critically on the duration of energy supply disruptions and the resilience of AI-related investment. The MAS itself flagged that “a more persistent disruption to energy supplies will worsen inflationary pressures worldwide and deepen the drag on growth,” while “an unexpected pullback in AI-related investment would also compound downside risks to growth.” Given these uncertainties, the MAS is likely to maintain a cautious policy stance through the remainder of 2026, with any further tightening or loosening contingent on how the energy crisis and investment cycle evolve.