ravi menon : monetary authority of singapore ’ s annual report 2011 / 12 opening remarks by mr ravi menon, managing director of the monetary authority of singapore, at the monetary authority of singapore ’ s annual report 2011 / 12 press conference, singapore, 25 july 2012. * * * good morning. welcome to mas ’ annual report press conference. i will focus on five key areas today. first, what is happening on the growth and inflation front ; second, what does it mean for mas ’ monetary policy ; third, how is mas managing risks to our economic and financial stability ; fourth, what mas is doing to make our financial sector stronger ; and fifth, how we are positioning singapore ’ s financial centre for growth. let me start with the economy. growth and inflation singapore economy remains on track to grow at 1 – 3 % this year singapore ’ s gdp growth averaged 4. 2 % 1 in the first half of this year. but the growth momentum is clearly slowing. the average growth in the second half of the year is likely to be slower than in the first half of the year. this is not unexpected, and has been factored into whole year growth forecast of 1 – 3 %. the global economy is slipping into a synchronised slowdown. the latest business surveys in all major jurisdictions have turned more negative. there is greater uncertainty in the us economy compared to three months ago, especially with respect to the labour market. the eurozone remains mired in recession with no early end in sight. financial market stresses have eased somewhat but the underlying vulnerabilities remain. in emerging asia, domestic demand is holding up, but growth is vulnerable to developments in america and europe. the full extent of weakness in exports, and its effects through regional production and trade linkages, has probably not filtered through completely. i must add that our forecast is based on three assumptions : no recession in us, no significant escalation of the eurozone crisis, and no “ hard landing ” in china. if one or more of these assumptions do not pan out, singapore ’ s gdp growth could dip below 1 % for 2012. but growth of 1 – 3 % should be seen in perspective. the economy is operating at full employment and capacity utilisation is high. the singapore economy has expanded by an average of 5. 8 % over the past five years, faster than economy ’ s underlying potential. the moderation in growth thus brings the economy closer to its sustainable level of output, and will

mainly through a spike in risk aversion and drying up of bank credit, quite similar to 2008. already, we have seen some retraction in the eurozone banks ’ trade finance activities in asia, but the local and global banks have stepped in to fill the void. financial market stresses will be felt most keenly in capital flows, currency markets, and interbank funding. there could be larger and more volatile capital flows. we must be prepared for both excessive inflows as well as outflows. this could in turn have either upward pressures or downward pressures on the singapore dollar. interbank funding could tighten further. we are keeping a close watch on market liquidity conditions, especially in the availability of us dollar funding. finally, the impact on safety and soundness of financial institutions. financial institutions operating in singapore have limited direct exposure to peripheral europe. but if the crisis spreads to core europe, the contagion could be larger. mas is closely monitoring banks ’ lending exposures and funding profiles. given our close links to global financial networks, we will not be unaffected. but our financial system is sound and we should be able to weather the storm. our local banks – at the core of the financial system – have strong capital and liquidity positions. they have very good asset quality, with non - performing loans ratio at just 1. 3 %. we have been carrying out periodic industry - wide stress tests. the tests suggest that major financial institutions in singapore would be able to withstand adverse financial and economic shocks. mas will continue to monitor closely developments in the eurozone and their potential impact on singapore ’ s economic and financial stability. the 2008 financial crisis and current crisis in the eurozone underscore importance of building a sound financial sector through strong regulation and supervision. bis central bankers ’ speeches a sound financial sector singapore will continue to meet or exceed international regulatory standards let me touch on efforts on the regulatory front in three areas : strengthening our banks ’ ability to absorb losses ; enhancing our frameworks for consolidated supervision ; and extending scope of regulation to cover all fund management companies. in the area of loss - absorbency, singapore will fully implement the basel iii capital standards. singapore - incorporated banks will meet basel iii minimum capital adequacy requirements two years ahead of the basel committee ’ s timeline of 1 january 2015. they will then meet, from 1 january 2015, mas ’ capital adequacy requirements that are 2 % higher than the basel iii global capital standards. next