Singapore’s annual inflation could hit its highest in nearly two years in the fourth quarter,  the central bank said on Wednesday, but further policy tightening at its next review in October appears unlikely for now. 

The Monetary Authority of Singapore, which uses currency as a monetary policy tool, said in its twice-yearly report its latest decision to tighten policy was “appropriate and timely” given the strong economic recovery and improving global environment.  

 

It said rising commodity and transport costs could push inflation to 4% in the final months of this year, which would be the highest since December 2008. 

 

The central bank maintained, however, its full-year inflation forecast of 2.5-3.5%, which could suggest it saw no need to tighten again when it reviews policy at its second review. 

 

“They have already done double-barrel tightening in the April meeting, that really makes little likelihood of another tightening in October,” ING economist Prakash Sakpal said when asked about the significance of the fourth quarter forecast. 

 

The MAS on April 14 moved the currency band up and switched to a policy of its modest and gradual appreciation. (SGD=D3) (SGD=), its most aggressive tightening move ever.  

 

“The MAS already factored in the upward inflation into the April movement, which as we know was already quite a tight action,” UOB economist Penn Nee Chow said. 

 

The Singapore dollar was trading at 1.374 against the U.S. dollar and has strengthened by 1.3% against the U.S. currency since the MAS tightened policy. 

 

Without directly commenting on Greece’s troubles with financing its ballooning debt, the central bank said “confidence is faltering in the euro zone given concerns over sovereign debt and fiscal sustainability.” 

 

Rating agency Standard and Poor’s slashed Greek government bonds to junk status on Tuesday and also downgraded Portugal. 

 

At its mid-April review, the central bank lifted this year’s economic growth forecast by 2.5 percentage points to 7-9%. 

 

In Wednesday’s report, the MAS said there could be some moderation in growth momentum or even some pullback in output over the next few quarters although the underlying drivers of growth are likely to remain intact.

 

It said growth this year would be mainly led by trade-related activities, namely manufacturing, wholesale trade and transport and storage. The cyclical upswing in global information technology would also support growth in Singapore’s electronics and precision engineering, the central bank said.