Heng Swee Keat: How the Monetary Authority of Singapore had
responded to the crisis and its challenges ahead
Acceptance speech by Mr Heng Swee Keat, Managing Director of the Monetary Authority of
Singapore, on receiving The Banker's "Central Bank Governor of the Year in Asia-Pacific"
Award, Singapore, 11 February 2011.
* * *
On receiving the award and paying tribute to MAS' staff
1. I am deeply honoured and humbled to receive the "Central Bank Governor of the
Year in Asia-Pacific" Award by The Banker.
2. This award is a tribute to the collective contribution of the staff of the Monetary
Authority of Singapore (MAS) who had worked hard to ensure that our monetary policy
stance was appropriate for the economy during the downturn and the eventual recovery; and
to foster a sound and progressive financial system, which overall stood well under stress
during the global financial crisis. Several of our key management team members are here:
Edward Robinson, Andrew Khoo and Ng Nam Sin. This is also a testament to the
collaborative efforts with the industry to build a resilient financial sector. I thank members
present here for the roundtable, and in particular Mr J Y Pillay, who as former MD of MAS,
laid a strong foundation of sound central banking and regulation.
How MAS had responded to the crisis
3. As a small and open economy with strong linkages with the rest of the world,
Singapore was severely affected by the financial crisis through a sharp falloff in global trade.
We experienced four consecutive quarters of sequential contraction with a cumulative output
loss of 9% - our deepest recession since independence. Conversely, with the subsequent
recovery in the global economy, Singapore's GDP rose sharply and now exceeds the level
before the crisis. Last year, the economy grew by an estimated 14.7%.
4. Over the course of the crisis in 2008/2009, MAS' monetary policy responses were
deliberately graduated, underpinned by the objective of promoting price stability in the
medium term. We did not react to every single development in the economy or the financial
markets as this would have introduced unnecessary volatility and uncertainty. Following the
significant deterioration in external demand in late 2008, MAS eased policy in October 2008
and April 2009 to provide support to the domestic economy. In early 2010, taking into
account the strong recovery path of the economy and rising domestic cost pressures amidst
high rates of resource utilisation, MAS shifted to a modest and gradual appreciation of the
S$NEER policy band. Subsequently, MAS tightened policy further in October 2010 by
increasing slightly the slope of the policy band.
5. Singapore's financial system experienced some initial strains but otherwise has
proven resilient during the crisis. Banks and insurers maintained robust capital and liquidity
buffers, and balance sheets were relatively strong. Their prudent risk management allowed
them to weather the crisis well. MAS has also remained vigilant through the crisis, with my
colleagues working hard to ensure that our regulatory and supervisory efforts remain robust.
Challenges ahead
6. To maintain sustained growth, sound economic management, with an appropriate
mix of mix of policies, is essential. Sound monetary policy, together with the appropriate
fiscal policy, contributes to macro-economic stability. However, it is structural policies that we
must turn to, if we are to successfully meet the challenges brought about by demographic
changes, technological advancements and globalisation. Macroeconomic or financial policies
cannot work in isolation, and indeed, an over-reliance on any specific policy instrument can
create unintended consequences. The robust recovery in the Singapore economy reflects in
part the judicious mix of policies that the government has pursued.
7. This year, the Singapore economy is expected to expand at a more moderate pace
of 4-6%, driven by the services sector which is expected to benefit from robust regional
demand. The IMF projects that the global economy will expand by 4.4%. Nevertheless, the
road ahead remains challenging.
8. First, the pace of recovery varies across economies. Many advanced economies are
weighed down by the protracted process of restructuring of financial systems and fiscal
consolidation. In comparison, Asian and most emerging economies, including Singapore,
have bounced back decisively, and are now facing rising inflationary pressures because of
tight factor markets and higher global commodity prices. The growth differential and the very
accommodative monetary conditions in the advanced economies have also resulted in a
strong surge in capital flows into Asia. However, in more recent weeks, the more positive
data in the US has resulted in some flow-back to the US markets. This more variegated and
dynamic landscape means financial markets are likely to remain volatile in the months
ahead. We need to be prepared to manage this volatility.
9. Second, policymakers not only have to grapple with the aftermath of the financial
crisis, but also the medium term structural challenges facing their countries. There are
significant differences in the pattern of saving and investment across economies. Many of
these reflect structural factors such as demographics, as well as the particular path of growth
and development. To sustain global growth, some changes in the global saving-investment
pattern will be necessary. This cannot happen overnight. Instead, we need sustained and
coordinated policy action across all the major economies. The IMF and global bodies like the
G20 will have to continue to focus and provide direction on these structural issues.
10. Third, the financial crisis shows how critical the nexus is between the health of the
financial system and the health of the economy. Global regulatory reforms are necessary to
address many of the weaknesses uncovered during the crisis. Yet, we have to tread a fine
balance to build not just have a resilient global financial system, but also one that can
support sustainable economic growth. Given the varying pace of economic recovery and the
different phases of economic transition, regulations need to be appropriate to local
circumstances, while preventing regulatory arbitrage. Globally coordinated efforts and strong
international cooperation in some areas, as well as local efforts that are context-specific will
both be needed to achieve the desired regulatory outcomes.
11. In short, there are many challenges ahead in navigating the global economic and
financial landscape. Singapore, as a small, open economy, will be subject to many of these
challenges. We will have to remain vigilant and nimble. I hope that we will continue to make
our small contribution to the global discussion on these challenges. We will play our part in
strengthening the global financial infrastructure to facilitate the efficient channelling of
savings for sustainable development in the region and beyond.
12. I would like to thank The Banker for this award which I accept on behalf of my MAS
colleagues. I also thank members of the industry for working together with MAS.