Three explanations are particularly relevant for this cyclical development. First, low or negative output growth like that observed in times of recession together with the associated pessimism about future prospects, all have a negative impact on interest rates. Low growth and excess capacities reduce the anticipated return on capital, thus diminishing the incentives to invest and lowering the demand for funds. At the same time, the lack of confidence depresses demand and increases the level of savings. This combination of low demand and a high supply of funds leads to low interest rates. The low interest rates we currently observe are thus, first and foremost, a natural consequence of the current state of the global economy, characterised by a substantial slowdown of economic activity after the financial crisis and a comparatively weak recovery,  1  For a more detailed description of the “Great Moderation” cf., for instance, Bernanke (2004). 2  Cf. Bernanke (2007). 3  Cf., for instance, Gordon (2012) for a provocative thesis on future productivity and GDP growth and Bloom et al. (2001) for an extensive survey of the impact of demographics on growth. 2  BIS central bankers’ speeches  with marked underutilisation of production factors, notably labour, in many advanced economies (chart 7). Second, as mentioned before, the central banks of most mature economies have also contributed to the current environment of low interest rates. They responded swiftly and decisively to the crisis by first lowering short-term rates practically to zero, then exerting direct pressure on longer rates.

The Singapore dollar has been included as one of eight settlement currencies in the Continuous Linked Settlement (CLS) system - a global initiative aimed at eliminating foreign exchange settlement risk arising from time zone differences. Going forward, the outlook for the other segments of the financial sector has improved. The stock market has rebounded with daily transactions nearly tripling in Q2, compared to Q1. With the expected pick-up in domestic and regional economic activity in H2 2003, we are also likely to see further improvement in commercial banking. The financial sector is expected to post a small positive growth this year, following the 4.8 per cent contraction in 2002. BIS Review 33/2003  1  Enhancing supervisory framework for sound financial sector On the supervisory and regulatory front, MAS continued its efforts to move away from a prescriptive, rule-based approach to a more flexible, risk-based approach. This entailed strengthening risk-based and disclosure-based regulatory frameworks, enhancing corporate governance standards to foster better risk management on the part of institutions, and empowering consumers to make better informed investment decisions. Let me touch on key initiatives in each of these areas. An important step towards a disclosure-based regime was the full implementation last year of the Securities and Futures Act and Financial Advisers Act. MAS will continue to refine the regulatory framework for capital markets, taking into account industry feedback. In the area of risk-based supervision, we implemented last year the new Liquidity Supervision Framework for banks.