SINGAPORE'S central bank will probably ease monetary policy in October to support the country's slowing economy, which may slump into a technical recession in the third quarter, Citigroup said on Monday.

Citi economist Kit Wei Zheng said the Monetary Authority of Singapore will probably slow the rise of the Singapore dollar by switching to a 'zero appreciation' bias, and reducing the slope of the policy band in which the currency is allowed to rise.

The central bank sets monetary policy by managing the Singapore dollar in a secret trade-weighted band against a basket of currencies, not by adjusting interest rates.

Under that opaque system, the currency is still allowed to appreciate at a gradual pace against the trade-weighted basket, although no one is sure at what pace.

'The backdrop of an extended period of below potential growth is essentially disinflationary, and sets the stage for an easing of monetary policy,' Mr Kit said in a note to clients.

He said there was a 40 per cent chance Singapore may fall into a technical recession in the third quarter.

Like others around the world, Singapore's trade-dependent economy is slowing as the global credit crisis takes a toll on consumer demand, especially in the key US and European export markets.

Mr Kit said non-oil domestic exports, which were worth about three quarters of Singapore's economy in 2007, could fall 'well into early 2009', citing the OECD Composite Leading Indicator.

He said it appeared unlikely for now the central bank will change the centre of the band in which the currency trades - usually regarded by economists as the most aggressive move - but the move cannot be ruled out if exports, factory output and inflation disappoint in August.

The government said last month Singapore's economy will grow at the lower end of its 4-5 per cent forecast, much lower than the strong expansion of 7.9 per cent in 2007.