By Robin Chan

SINGAPORE'S monetary policy is expected to remain unchanged ahead of next week's economic review, despite Australia's earlier-than-expected hiking of interest rates.

Economists here said that with growth prospects remaining uncertain, the Monetary Authority of Singapore (MAS) was likely to retain its cautious approach and keep to its current neutral exchange rate stance.

The MAS, which meets twice yearly to review monetary policy, shifted from a policy of gradual appreciation to a neutral position in October last year as the global economy entered the throes of the recession.

In April, it lowered the centre of the dollar's 'band' - the range within which the Singapore dollar trades against a basket of currencies - as governments around the world slashed interest rates to inject liquidity into the financial system.

Because the Republic is one of the most export-dependent economies in the world, the exchange rate is used as the chief monetary policy tool to fight inflation or stimulate growth. This is in contrast to other countries where interest rates are used instead.

Currently, inflation has remained relatively benign here, with this year's Consumer Price Index expected to come in at between zero and minus 1 per cent. So economists do not see the Australian move being necessary in Singapore, where growth appears more tenuous.

'We want this recovery to broaden and deepen at this current juncture,' said Barclays Capital economist Leong Wai Ho.

'China's infrastructure boom is driving demand for commodities from Australia, such as iron ore and coal, so Australia is experiencing a positive terms-of-trade shock like never before. And that is unique to Australia.'

Elsewhere, central banks may tighten monetary policy to combat domestic asset bubbles, but HSBC's Robert Prior-Wandesforde said appreciating the exchange rate would not be the best way to fight that here.

'Singapore has and will probably continue to use more micro measures to tackle the issue, given interest rates are out of bounds,' he said.

The Government recently acted to calm Singapore's surging property market by introducing specific measures to curb speculation.

Economists here do not expect any change in Singapore's monetary policy to come before next April's meeting. In the unlikely event that the MAS were to change its policy next week, it would most probably re-centre the exchange rate band upwards, OCBC economist Selena Ling said.

The Reserve Bank of Australia's (RBA) move set off speculation among market watchers that other countries like South Korea and Singapore might be pressured to follow suit ahead of their policy reviews. Indonesia kept its rates unchanged yesterday.

Mr Leong said there may be an initial spike in short-term money market rates in other countries, as markets raise their expectations for other central banks to follow the RBA.

But he predicted such expectations would prove unfounded, because other countries were not in the same situation as Australia.

This article was first published in The Straits Times.