There had been expectations that the Monetary Authority of Singapore, in its twice-yearly review, would raise the ceiling on the currency's trading band to counter inflation caused by high oil prices and a tight labour market.

Singapore conducts monetary policy through the exchange rate rather than interest rates because of the city-state's small size and open economy.

Economists said MAS believed keeping its current policy of a "modest and gradual" appreciation of the Singapore dollar would help support growth of the export-led economy, which the government predicts will expand by 4-6 per cent this year.

The MAS decision followed the release this week of preliminary first-quarter estimates by the government that revealed that quarter-on-quarter growth slowed to an annualised 1.2 per cent from 12.5 per cent in the fourth quarter of 2005. However, MAS said it regarded the slowdown as temporary.

Some economists have warned that a stronger currency could hurt Singapore's exports in the second half of the year when global orders for the city-state's mainstay electronics industry might weaken.

MAS said inflation would be 1-2 per cent this year, up from a forecast of 0.5-1.5 per cent when it last issued its review six months ago. The annual inflation rate was 1.2 per cent in February.

But some economists said inflation was still tame, which reduced the need for the monetary authority to adopt a more hawkish stance.

MAS adopted its current tightening stance in April 2004 to curb inflationary pressures. The authority influences the value of the Singapore dollar, which is measured against a basket of currencies of the city-state’s main trading partners, by adjusting the midpoint of its undisclosed trading band, widening the band or speeding up its appreciation.

The Singapore dollar has risen close to an eight-year high, partly on speculation that MAS would tighten monetary policy. It has appreciated by 3.6 per cent against the US dollar this year.

MAS said the Singapore dollar had appreciated to the upper half of the policy band, but gave no indication that it was uncomfortable with current levels.
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