SINGAPORE - Singapore's central bank tightened monetary policy slightly on Friday and reiterated it would let the Singapore dollar appreciate at a "modest and gradual" pace.

The Monetary Authority of Singapore, saying the slope of its currency policy band would be increased slightly, also revised its forecast for full-year all-items inflation to 3.5 to 4.5 per cent from 2.5 to 3.5 per cent.

Sixteen of 17 forecasters polled by Reuters had expected the MAS to stand pat on policy, while one saw a 50 per cent chance it would let the currency strengthen at a faster pace.

Singapore manages monetary policy by letting the its dollar rise or fall in a undisclosed band against a secret trade-weighted basket of currencies of its main trading partners.

Singapore also said its economy grew 9.9 per cent in the first quarter from the last three months of 2011, meaning it avoided a technical recession. The economy grew 1.6 per cent in the first quarter from a year earlier.

The median forecast of economists polled by Reuters was for growth of 7 per cent on an annualised and seasonally adjusted quarter-on-quarter basis and a year-on-year expansion of 1.1 per cent.

Commentary

Chua Hak Bin, Economist at Bank of America Merrill Lynch:

"In terms of growth, prospects are looking better compared to a month back. MAS did highlight the inflation risk but they also said pressures will ease." "The tail risks (to the economy) have receded - that's why there is the narrower band." "They are more comfortable with the slightly steeper slope - it could be half a per cent, it could be 1 per cent (further appreciation of the Singapore dollar)." "Overall, it's a more bullish statement."

Market reaction

The Singapore dollar was trading around $1.2467 against the US dollar, slightly stronger than the $1.2502 just before the monetary policy announcement.