Singapore stands pat on monetary policy, ups inflation view

SINGAPORE, Oct 12 (Reuters) - Singapore's central bank unexpectedly kept monetary policy on hold on Friday, saying it will continue letting the Singapore dollar appreciate at its current pace as inflation remained a worry.

"Core inflation receded recently but will face upward pressure from higher food and services costs. CPI-All Items inflation will remain elevated for some time," the Monetary Authority of Singapore (MAS) said in its half-yearly monetary policy statement.

"MAS will therefore maintain the policy of a modest and gradual appreciation of the S$NEER (nominal effective exchange rate) policy band. There will be no change to the slope and width of the policy band, as well as the level at which it is centred," the central bank said.

"This policy stance is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth," MAS added.

MAS said core inflation is expected to average around 2.5 percent in 2012 and 2-3 percent next year, while headline inflation is likely to come in "slightly above 4.5 percent" in 2012, mainly because of higher car prices.

Seventeen of 21 forecasters polled by Reuters before the policy statement had expected MAS to loosen policy by slowing the Singapore dollar's pace of appreciation, while four predicted the central bank would stand pat as inflation remained high by historical standards.

Singapore manages monetary policy by letting its dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band.

At its April policy announcement, MAS reiterated its bias for a "modest and gradual appreciation" of the Singapore dollar and increased the slope of the policy band slightly, indicating it will let the currency appreciate at a faster pace to help lower inflation expectations.

The central bank also narrowed the policy band in April, indicating it will allow less fluctuations in the local currency.

The Singapore dollar , the world's 12th most-traded currency, has gained around 5.6 percent so far this year, helped by rising foreign investment in Singapore assets that are seen as a safe haven amid the turmoil in global financial markets.

(Reporting by Kevin Lim; Editing by Sanjeev Miglani)

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