Singapore’s dollar rose on speculation the central bank will seek currency gains to temper the fastest inflation in 20 months.

Consumer prices climbed 3.7% in September from a year earlier, the most since January 2009, the government reported on Oct. 25. Inflation may reach 4% in some months of 2010 and 2011, compared with an official forecast of 2.5% to 3% for the year, Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore, said today.

 

Singapore’s dollar rose 0.2% to $1.3002 versus the U.S. currency as of 10:34 a.m. local time, according to data compiled by Bloomberg. It climbed to $1.2817 on Nov. 4, the highest since Bloomberg began compiling the data in 1981. The currency has gained 7.8% this year, the third-best performance among the 10 most-traded Asian currencies excluding the yen.

 

“The general expectation is that the appreciation policy is still very much intact,” said Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd. “The Singapore dollar could rise to $1.20 at some point next year.”

 

The economy will expand 4% to 6% next year after estimated growth of 15% in 2010, the trade ministry said in a statement today.

 

Singapore’s gross domestic product shrank at an annualized rate of 18.7% in the third quarter from the previous three months, less than the 19.8% pace initially reported last month, the trade ministry said today. The economy grew 10.6% in the quarter from a year earlier versus a revised 19.5% expansion in the previous three months, it said.

 

The central bank uses the currency rather than interest rates to manage monetary policy, guiding the local dollar within a band of undisclosed trade-weighted currencies. The MAS adjusts the pace of appreciation or depreciation by changing the band’s slope, centre or width. At a twice-yearly policy review on Oct. 14 it said it will steepen the slope and widen the band, while continuing to seek a “modest and gradual appreciation.”

 

Singapore’s dollar will rise 2.4% to $1.27 against the greenback by the end of 2011, according to the median estimate of economists in a Bloomberg News survey. The forecasts ranged from $1.20 to $1.33.