The Monetary Authority of Singapore (MAS) which conducts policy by managing the value of the local dollar against a basket of other currencies, re-centered its exchange rate policy band upwards, though to below the prevailing nominal effective exchange rate.

It left the slope and width of the band unchanged.

As authorities let the currency strengthen to nearly but not fully reflect its nominal effective exchange rate (NEER) value, traders and analysts said further gains may be limited.

Standard Chartered Bank strategists said the MAS may have been concerned that a re-centering of the policy band at the prevailing level of the NEER would have been excessive as it would have meant a revaluation of nearly 3 percent.

Goldman Sachs termed the MAS's move: a "half re-centering".

Prior to Thursday's policy, the local dollar has gained nearly 2 percent so far this year, hitting a series of record highs as Singapore and other Asian central banks allowed their currencies to appreciate to check imported inflation.

It again shot to a record high after the city-state reported growth of 8.5 percent year-on-year in the first three months of 2011, far above analysts' forecasts.

"We believe the MAS is done with tightening, and expect it to keep policy unchanged in the next meeting in October 2011," Standard Chartered Bank said.

Currency forwards and bond markets too embraced that view with six-month US dollar premiums briefly spiking higher after the decision while two-year bond yields consolidating after a recent drop.

Two-year bond yields firmed up by about half a basis point to 0.82 percent but it is still down by eight bps for the month, while the six-month forwards dipped briefly before settling in the 4.50-5.00 point band.

Despite the muted response in the bond markets, the Singapore dollar headed back toward a record low again, with fresh short positions being built with real money and hedge funds on the offer side.

"Assuming that the centre has been shifted 1 percent higher, we are still a distance away from the lower bound of the USD/SGD," said Pin Ru Tan, emerging markets currency and rates strategist at the Royal Bank of Scotland.

"So it is not surprising that fresh short positions are established.