Singapore eased its policy stance in a surprise move on Thursday by deciding to end allowing appreciation of the domestic currency, as the economic growth is expected to remain modest amid a gradual pick-up in inflation.

The Monetary Authority of Singapore set the rate of appreciation of the Singapore dollar at zero percent in its biannual policy meeting.

"This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the S$NEER [Singapore dollar nominal effective exchange rate] policy band that was in place," the de facto central bank said.

"The width of the policy band and the level at which it is centred will be unchanged."

The MAS applies the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool. The next policy session is in October.

The bank had adopted a modest and gradual appreciation path for S$NEER policy band since April 2010.

The latest move to a neutral policy stance of zero percent appreciation follows the measured steps taken to reduce the rate of appreciation of the policy band in January and October 2015 respectively, the MAS said.

Over the six months since October, the actual outcome of S$NEER movements was a zero percent appreciation compared to the preceding six-month period. The cumulative effects of past S$NEER movements and the new policy path will continue to ensure price stability over the medium term, the bank added.

Singapore's economy grew 1.8 percent year-on-year in the first quarter of this year, same as in the previous three months, while the quarterly rate sharply slowed to zero from 6.2 percent, preliminary data from the Ministry of Trade and Industry showed on Thursday.

The MAS projected "a more modest pace of growth for the Singapore economy" this year than what was forecast in October. In 2015, the economy expanded 2 percent.

"MAS Core Inflation should also pick up more gradually over the course of 2016 than previously anticipated, and is now likely to fall below 2 percent on average over the medium term," the bank said in a statement.

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