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. beyond current uncertainties, significant risks remain in the global economy and financial system that could derail growth. in emerging asia, there are upside risks to inflation. if central banks are forced to tighten monetary policy more, growth could be jeopardized. in the bis central bankers ’ speeches us, there are concerns about fiscal sustainability. if these lead to volatility in the financial markets against the backdrop of a still - weak labour market, then gdp could decelerate sharper than expected. but the chief global risk is the ongoing sovereign debt crisis in peripheral europe. if there is contagion and banks in core europe are affected, there could be a severe credit squeeze and pullback in economic activity. mas is closely monitoring the developments in europe. let me now go on to recent developments on the inflation front. headline inflation is now expected to be 4 – 5 %, but forecast for core inflation is unchanged. i mentioned two months ago in a speech that headline cpi inflation had probably peaked. this remains technically correct but less clearly so in substance. inflation has indeed eased from 5. 5 % in january to 4. 5 % in april and may. but inflation is expected to creep back up to slightly above 5 % for the next couple of months before slowly trending down towards the end of the year. therefore, for 2011 as a whole, we are revising cpi inflation forecast to 4 – 5 %, from the current 3 – 4 %. this upward revision and renewed volatility reflect two factors. first, accommodation costs. over the past few months, cpi accommodation costs were boosted by an unexpected surge in the number of tenancy contract renewals at current higher rental rates. this resetting of old rental contracts could persist into the second half of this year. we therefore expect accommodation costs to impact cpi inflation more strongly than previously. second, private transport costs. coe premium

cannot insulate our financial sector from the stresses and turbulence in international financial markets. • we must remain open but be able to absorb shocks from abroad and bounce back. high prudential standards have therefore been a hallmark of singapore ’ s financial sector since the very beginning. • in recent years, we have further strengthened the resilience of the system through higher capital requirements and enhanced liquidity rules. singapore banks operate well above the regulatory capital minimums. bis central bankers ’ speeches • the basel committee prescribes a minimum tier 1 capital adequacy ratio of 6 % ; • mas has set a regulatory minimum of 8 % ; • the three local banking groups have tier 1 ratios in excess of 13 %. singapore banks are well - placed to meet the basel iii leverage ratio requirements, currently proposed as 3 %. • in fact, the three local banks have leverage ratios above 7 %. mas has had a liquidity requirement long before an international standard was developed and has recently increased the risk sensitivity of our liquidity rules. • the three local banks ’ liquidity coverage ratio or lcr is already well above 100 %, the target set by the basel committee for 2019. these strong buffers – built up in good times – are now serving us well as we enter a soft patch in economic conditions. • the banking system ’ s ratio of non - performing loans went up to 1. 9 % in q2, from 1. 3 % a year ago. • but the banking system has set aside provisions to cover more than 100 % of its npls. there have been concerns raised about the impact of the oil and gas ( o & g ) sector. • the o & g industry has been under pressure from low global oil prices for some time. • we expect to see some of that pressure showing up in our banks ’ npls. the banks have been actively managing the risks from the o & g sector. • the banking system ’ s exposures to the o & g sector as a proportion of total exposures ( i. e. including non - bank loans, debt securities and contingent liabilities ) is less than 10 %. • among the local banks, o & g exposures are even lower, at about 6 %. it is also important to appreciate that there is no systemic problem across the o & g industry. • the problems in the o & g industry are concentrated in the upstream marine and offshore engineering segment which makes up less than one - fifth of the