Singapore's GDP accelerated at a faster-than-expected pace in the first quarter of 2012 compared to the preceding three months, government data showed on Friday.

The seasonally-adjusted, annualized growth rate of 9.9% was driven by a sharp increase in manufacturing output, and compares with a 2.5% contraction in the October-December period.

The GDP print also comfortably surpassed expectations for a 6.3% rise by economists.

GDP expanded by 1.6% from a year earlier in the January to March quarter, after growing 3.6% in the previous three months. The expansion was more than the median forecast of 1%.

The Monetary Authority of Singapore tightened its policy by allowing faster currency gains to check rising inflation.

The central bank, which uses the exchange rate to manage inflation, said that it will increase slightly the slope of the currency trading band and raised its inflation forecast.

The central bank also said that it is restoring a narrower policy band for the currency, while maintaining a modest and gradual appreciation. It widened the trading band at its October 2010 policy review.

Singapore dollar is the region’s best performer this year. It has gained 3.8% year-to-date.

The Straits Times index in Singapore gained 0.6% to end at 2,997.

Singapore’s inflation will average 3.5% to 4.5% in 2012, the central bank said today, compared with a previous forecast range of 2.5% to 3.5%. It raised the core inflation projection to a range of 2.5% to 3% from 1.5% to 2%.

"External inflationary pressures are likely to be sustained on higher oil prices, and the domestic labor market remains tight”, Singapore's central bank said today.

“This policy stance will help anchor inflation expectations, ensure medium-term price stability, and keep growth on a sustainable path,” the central bank said.

Bank of Korea keeps key rate on hold