In the US, weaknesses in housing and labour markets are persistent. Uncertainty over employment prospects will cap the strength of consumer spending. But business sentiments (as measured by the purchasing managers’ index) and new orders for capital goods point to continued economic expansion, though at a slower pace. In Europe, the core economies such as Germany and France should continue to perform well. Industrial output and business investment have been robust. But sovereign debt concerns in peripheral EU economies have escalated. They cast some uncertainty over Europe’s near-term growth prospects. In Japan, the economy has been hit hard by the earthquake and tsunami. But there are signs that the worst has passed as production has begun to gradually recover. Emerging Asia remains on a relatively firm footing. Domestic demand continues to be resilient, supported by robust income growth and generally healthy household and corporate balance sheets. On balance, the Singapore economy should register moderate growth for the rest of this year. Some industry-specific factors that dragged down growth in electronics and pharmaceuticals are expected to be transitory and the manufacturing sector should pick up from the soft patch we saw in Q2. The services industries, especially financial and tourismrelated activities, should remain firm due to strong regional demand. MTI and MAS are reviewing Singapore’s GDP growth forecast. For now, our sense is that the 5–7% forecast range remains intact. But if the pick-up from the downturn in Q2 is weaker than currently expected, growth could come in at the lower half of the range.

Core inflation remains slightly above the historical average of 1.7%. Inflationary pressures in the economy, while not acute, bear very close watching. First, there is tightness in the domestic labour market. The unemployment rate has dipped below 2%. Second, domestic spending remains firm, supported by strong income growth and generally favourable sentiments. Third, global commodities prices remain elevated, reflecting short-term supply constraints. MAS will continue to keep a close watch on inflationary pressures and developments in our key export markets. At this juncture, the current monetary policy stance of appreciating the $ policy band set in April this year remains appropriate. The next Monetary Policy Statement is scheduled for October. I will now go on to MAS’ accounts. 2  BIS central bankers’ speeches  MAS made investment gains of $ billion but recorded overall loss of $ billion due to a strong exchange rate. Excluding exchange rate effects, MAS achieved income and net capital gains totaling $ billion during the financial year (FY) ended March 2011. Stronger global growth led to an upturn across many asset classes; MAS’ diversified investments posted valuation gains. With the recovery in asset markets over the past two years, MAS’ portfolio, excluding exchange rate effects, has more than recovered from effects of the global financial crisis. However, the strength of the Sing Dollar has had a bearing on the valuation of MAS’ foreign assets. Over the FY, the Sing Dollar strengthened considerably against most currencies: 10% against the US dollar and 5.5% against the Euro.