"Monetary policy might need to become more supportive," the IMF said, if overseas demand weakens more. It predicted that Singapore's economy would grow 4 percent this year, less than half the pace in 2004.

The Monetary Authority of Singapore on April 12 extended its year-old strategy of seeking a "modest and gradual" appreciation of the Singapore dollar to keep inflation in check. The currency has gained 3.2 percent against the US dollar this year.

A stronger currency reduces the cost of oil and other imports even as it erodes earnings for exporters like Chartered Semiconductor Manufacturing, Singapore's largest supplier of custom chips, and Creative Technology.

In a reply written to the IMF before its April 12 monetary policy review, the Monetary Authority of Singapore, the nation's central bank, said its policy stance remained appropriate.

"Should the outlook change in the interim, the MAS is ready to make the necessary adjustments to the policy stance," the central bank said in a statement dated Feb 7 and released on Thursday by the monetary fund. "Moreover, the flexibility accorded by the exchange rate policy band would, in the first instance, accommodate any slowdown in economic activity."

The IMF report was prepared after annual discussions were completed on Feb 7 with Singaporean officials, including the chairman of the monetary authority, Goh Chok Tong, and Second Finance Minister Raymond Lim.

Singapore's economy, valued at $104 billion, shrank at an annual pace of 5.8 percent in the first quarter, according to a preliminary government estimate. This prompted the monetary authority on April 12 to say growth this year would be in the lower half of the government's forecast of 3 percent to 5 percent.

Singapore's economy may see "some lingering softness" this quarter before strengthening in the second half as demand for electronics picks up, the central bank said on April 22 in its twice-yearly review of the economy.

The government has forecast that growth will slow in 2005 from last year's 8.4 percent expansion as a result of weaker global demand for electronics, including semiconductors.

The bank uses the level of the Singapore dollar, instead of interest rates, to control monetary conditions. Its policy is to maintain the value of the Singapore dollar within an undisclosed band based on a basket of currencies of its major trading partners.

The bank said on April 22 that inflation might exceed its forecast as gains in oil prices increase the cost of imports. It said on April 12 that the inflation rate would be 1 percent or less in 2005 and rise 1 percent to 2 percent in 2006.

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