By Masayuki Kitano and Jongwoo Cheon
SINGAPORE (Reuters) - Singapore's central bank unexpectedly eased its exchange-rate based monetary policy settings on Thursday, saying the economy is likely to grow at a more moderate pace than previously thought.
The move comes after a number of Asian central banks eased monetary policy this year, as authorities strive to counter sluggish global demand that has weighed on exports and dampened growth.
"I think it's the right policy move. Growth is definitely weakening," said Michael Wan, an economist for Credit Suisse (SIX:CSGN).
"It seems like they realized the labor market is weakening a bit more than they anticipated," he added.
The central bank said it will set the rate of appreciation of the Singapore dollar NEER policy band at zero percent, starting on Thursday, shifting from its previous policy stance of a "modest and gradual" appreciation of the Singapore dollar.
"This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the S$NEER policy band that was in place," the central bank said.
The Singapore dollar fell to 1.3590 against the U.S. dollar, its weakest since April 5 after MAS policy decision.
The central bank said that core inflation was likely to pick up more gradually this year.
Against a backdrop of sluggish global demand and low inflation, the MAS eased monetary policy twice last year, once in an unscheduled policy review in January 2015.
A majority of analysts in a Reuters survey had predicted that the MAS would keep its exchange-rate based monetary policy unchanged. But some had expected an easing due to weak exports and a depressed manufacturing sector.
The MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).