Singapore’s central bank unexpectedly signaled it will allow faster appreciation in the island’s currency to curb inflation even as slowing global growth caused its economy to shrink last quarter.

The Monetary Authority of Singapore said today it will steepen and widen the trading band on the local dollar while continuing to seek a “modest and gradual appreciation.” Gross domestic product shrank at a 19.8% annual rate in the third quarter from the previous three months after climbing a revised 27.3% in the April-to-June period, the trade ministry said in a separate report.

 

“The implication is that Singapore is less worried about growth and more worried about upside risks to inflation,” said Robert Prior-Wandesforde, head of Southeast Asian economics at Credit Suisse Group AG in Singapore.

 

Singapore’s move contrasts with Asian nations from Thailand to Japan, which have taken steps in the past month to cool the appreciation in their currencies that is threatening exports at a time when global growth is slowing. Prime Minister Lee Hsien Loong has said Singapore’s economy may “moderate” in the coming months after a record first-half expansion, citing risks from Europe and the U.S.

 

“Singapore is typically a bellwether for the region’s export outlook and it is the first to show cracks as global growth slows,” Alvin Liew, an economist at Standard Chartered Plc in Singapore, said before the report. Threats to Asian growth include “the fading impact of stimulus packages, stubbornly high unemployment rates and austerity measures that are likely to crimp consumption in the West,” he said.