Singapore will seek a faster appreciation of its currency to curb inflation even as the local economy grows at a slower and more sustainable pace, its central bank said.

The island will steepen and widen the band on the local dollar as the pace of consumer-price gains accelerates to 4% by the end of the year from 3.3% in August, the Monetary Authority of Singapore said in a statement following a semi-annual policy review. The center of the policy band remains unchanged, the bank said.

 

“This is effectively monetary tightening and reflects concerns about domestic inflation,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “The steeper slope will allow a faster pace of appreciation. The wider band will deal with the increased volatility in the market.”

 

Singapore’s dollar rallied 1 percent to $1.2914 against the greenback as of 8:22 a.m. local time, according to data compiled by Bloomberg. It reached $1.2893, the strongest since 1981 when Bloomberg began compiling such data. The currency has gained 8.6% this year, the third-best performance in Asia outside Japan.

 

The central bank uses the currency rather than a benchmark interest rate to manage inflation. Gross domestic product shrank an annualized 19.8% in the third quarter from the previous three months after climbing a revised 27.3% in between April and June, the trade ministry said separately. The median forecast of 19 economists surveyed by Bloomberg News was for a 15.7% contraction.