Singapore central bank kept its monetary policy unchanged on Monday amid a slowdown in economic growth and rising concerns about inflationary pressures.

As widely expected by economists, the Monetary Authority of Singapore said it will maintain the modest and gradual appreciation path of the S$NEER policy band, with no change to its slope, width, and the level at which it was centred.

Taking into account the balance of risks between external demand uncertainties and rising domestic inflationary pressures, the bank observed that the current policy stance is appropriate.

Instead of interest rates, MAS applies the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool.

MAS said it will continue to be vigilant over developments in the external environment and stands ready to curb excessive volatility in the policy band.

The bank is unlikely to alter course when it next meets in October, said Daniel Martin, an Asia economist at Capital Economics. He sees more chance of loosening in late 2015 if some problems emerge in the domestic economy.

Further, the central bank lowered its inflation forecast for 2014 to 1.5-2.5 percent from 2-3 percent, mainly reflecting the weaker outlook for imputed rentals over the rest of the year.

Wage pressures will persist and firms are likely to pass on business costs to consumer prices, the MAS said.

Nonetheless, the MAS kept the estimate for core inflation that excludes private road transport and accommodation costs, unchanged at 2-3 percent. Amid huge supply of newly-completed housing units, imputed rentals on owner-occupied accommodation are expected stabilize in 2014.

Data released by the Ministry of Trade and Industry today showed that the economy expanded only 0.1 percent on a quarter-on-quarter annualized basis in the first three months of 2014. The expansion moderated sharply from the 6.1 percent increase seen in the fourth quarter.

Although the economy barely expanded in the first quarter, recovering global demand should ensure solid growth over the rest of the year, Martin, economist at Capital Economics said.

The city-state economy grew 5.1 percent on a year-on-year basis, but lower than the 5.5 percent growth in the fourth quarter of 2013.

Driven by a sharp rebound in biomedical manufacturing output and stronger growth in chemicals output, manufacturing surged 8 percent in the first quarter after expanding 7 percent in the fourth quarter.

Similarly, construction growth accelerated to 6.5 percent from 4.8 percent. This was largely due to stronger expansion in public sector construction activities.

However, the growth in services producing industries slowed to 4.7 percent due to slower expansion in the wholesale and retail trade and finance and insurance sectors.

RTTNews