ravi menon : economic and financial developments in singapore opening remarks by mr ravi menon, managing director of the monetary authority of singapore ( mas ), at the mas ’ annual report 2010 / 11 press conference, singapore, 21 july 2011. * * * good morning. welcome to mas ’ annual report press conference. i want to focus on four key themes with a forward looking orientation : first, prospects for gdp growth, second, the outlook for inflation, third, mas ’ financial accounts, and fourth, maintaining high standards of financial regulation. let me begin with the economy. singapore ’ s gdp growth forecast range remains at 5 – 7 % for now, but uncertainties have clearly increased. as you know, economic growth took a sharp step - down in q2 following the strong performance in q1. first, disruption to regional supply chains in the aftermath of the japan earthquake was much more severe than expected. second, the rise in oil prices due to the unrest in the middle east and north africa has put a dampener on global demand. singapore ’ s trade - related sectors bore the brunt of impact. both manufacturing output and re - exports saw sequential declines in q2. in year - on - year terms, gdp growth averaged 4. 7 % in the first half of this year. looking at the second half of this year, the prognosis for global economy has taken on a more cautious tone. there is more uncertainty in us and europe compared to three months ago. but we expect growth in our external markets to continue, albeit at a slow and uneven pace. 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

##s have risen faster than expected, reflecting rising incomes and sharp cuts in coe quota to its lowest in more than a decade. this uptick in headline inflation should be seen in perspective. a better measure of underlying price pressures in economy is mas ’ measure of core inflation. core inflation excludes private road transport and accommodation costs, as these items are subject to short - term fluctuations. these items also do not affect the day - to - day outlay of most singaporean households. core inflation is the measure mas monitors most closely, among a range of indicators. compared to headline inflation, core inflation was much lower at 2. 2 % in april and may. this reflects in part mas ’ pre - emptive tightening of monetary policy in april and october last year, which has helped to dampen some cost increases. a stronger sing dollar has helped, not just by filtering oil and food price increases, but also by providing a restraining effect on the economy. the strong exchange rate has capped upward pressure on prices. for the whole of 2011, the projection for mas ’ core inflation remains unchanged at 2 – 3 %. this is not to suggest we are entirely satisfied with the inflation situation. 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 s $ neer 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. bis central bankers ’ speeches mas made investment gains of s $ 12. 3 billion but recorded overall loss of s $ 10. 9 billion due to a strong exchange rate. excluding exchange rate effects, mas achieved income and net capital gains totaling s $ 12. 3 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