Singapore govt bonds to trade on SGX by mid-2011

• Interest rates in Singapore near record lows
• Finance minister expects inflation to rise in coming months (adds details on bonds, inflation)

SINGAPORE, Jan 10 (Reuters) - Singapore government bonds will begin trading on the Singapore Exchange by the middle of this year, providing retail investors with a safe but higher-yielding alternative to bank deposits, Finance Minister Tharman Shanmugaratnam said on Monday.

He said retail investors concerned about the low savings rates can also participate in government bond auctions or buy high-quality corporate bonds that are now traded in smaller lot sizes on the exchange.

Singapore's annual inflation hit 3.8 percent in November, the highest since January 2009, and analysts said the rate could accelerate further in the first few months of 2011, prompting the central bank to maintain or further tighten policy.

In contrast, Singapore banks currently pay less than 0.2 percent per annum on savings deposits.

Singapore controls monetary policy by managing the exchange rate rather than setting interest rates.

"It (the consumer price index) is expected to rise further in the first quarter of this year before moderating in subsequent quarters," Tharman told parliament, citing upward pressure in global food prices.

He said the low interest rate environment in Singapore will continue for some time as the financial system is flush with cash and Western economies will keep monetary policy loose in view of their weak economies.

Corporate bonds in Singapore are usually issued in lot sizes in excess of S$100,000 ($77,234) but SGX has been encouraging firms to issue bonds in lot sizes below S$10,000 to encourage retail investors. ($1 = 1.295 Singapore Dollars) (Reporting by Nopporn Wong-Anan;; Editing by Kevin Lim)