Economic Developments and Monetary Policy MONETARY POLICY AMID SUSTAINED GROWTH AND EMERGING INFLATIONARY PRESSURES Against the backdrop of the robust rebound in the economy, monetary policy remained vigilant of incipient inflationary pressures. MAS shifted to a modest and gradual appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) in April 2004, amidst signs of a sustainable recovery in the economy and risks of rising inflationary pressures. The domestic economy continued its strong growth momentum in the first half of 2004. In spite of a more measured pace of growth in the later part of the year, domestic price pressures persisted, as the economy continued to expand and the labour market improved. There were also upside risks from stronger commodity prices, as well as the potential for a higher degree of pass-through of these cost increases as the domestic economy strengthened. Hence, MAS maintained the policy stance of a modest and gradual appreciation of the S$NEER in October 2004. This policy stance was reaffirmed on 12 April 2005. The underlying growth support for the Singapore economy remained intact, despite the weaker GDP growth in the first quarter of 2005. At the same time, inflationary pressures continued to be a concern over the medium term, with the economy operating at close to its potential output level and with upside risks to external inflation.