Singapore’s gross domestic product expanded at an annualised rate of 14.4 per cent in the second quarter, its fastest growth in two years.

Singapore’s central bank said on Wednesday it would maintain its policy of a ‘gradual and modest appreciation’ in the Singapore dollar, a decision widely expected by the market, but said it would slightly increase the slope of its policy band.

‘MAS will continue with the policy of a modest and gradual appreciation of the S$NEER policy band in the period ahead.

However, we will increase slightly the slope of the S$NEER (Nominal Effective Exchange Rate ) policy band,’ the Monetary Authority of Singapore (MAS) said in a twice-yearly monetary policy statement.

The move effectively lets the Singapore dollar appreciate further against the US dollar. The Singapore dollar hit a 10-year high on the news.

All economists polled by Reuters had expected the MAS to maintain its three-and-a-half-year-old moderately tight monetary policy to keep a lid on inflation as asset prices spiral higher in a booming economy and after a sales tax increase in July.

However, some economists polled last week believed the central bank’s meeting in April next year could bring a policy change, citing concerns over inflation and the possibility of the economy overheating.

Singapore’s gross domestic product expanded at an annualised rate of 14.4 per cent in the second quarter, its fastest growth in two years.

The MAS said it expected inflation in a 1.5 to 2 per cent range in 2007, up from its previous forecast of 1 to 2 per cent.

The annual inflation rate reached 2.9 per cent in August, its highest in 12 years.

Singapore’s central bank conducts policy through the exchange rate, steering the Singapore dollar within an undisclosed band against a trade-weighted basket of currencies, rather than by adjusting interest rates like most central banks. — REUTERS

Source : Business Times - 10 Oct 2007