ANNUAL REPORT 2002 / 2003

Economic Developments and Monetary Policy

International Financial Markets: Uncertainty Takes its Toll

The optimistic note with which 2002 began all but disappeared by May 2002 when uncertainty took hold and we saw lower and more volatile asset prices across global financial markets. Flight to safety was thus the main theme in portfolio allocation decisions. Global equities continued to come under pressure while major bond markets rallied. (See Charts 11 and 12.) US markets have since rallied on the back of investor optimism in the second quarter of 2003, with Asian markets similarly riding this tide of positive sentiment.

In Asia, South-east Asian equities managed to outperform other regions while Asian bonds also generally performed well. While geopolitical risks and corporate accounting scandals in Korea affected Asian markets in the earlier part of the year, Asian bonds have since rallied. (See Chart 13.)

In the foreign exchange market, persistent uncertainty about the strength of the US recovery and the concerns over the initial progress of the Iraq war led to a volatile and weaker US Dollar against the Euro and the Yen. Following a brief rally on the back of the successful conclusion of the war, the US Dollar has weakened further because of concerns over the US current account deficit and market perception of the US administrationís willingness to tolerate a weaker dollar. Asian currencies have generally strengthened against the US Dollar since early 2002. (See Chart 14.)



The Global Economy: Still Waiting for Recovery International Financial Markets: Uncertainty Takes its Toll The Singapore Economy: Roller Coaster Ride
Neutral Monetary Policy Stance in 2002 Increasing the Transparency of Monetary Policy Framework In-depth Economic Research and Analysis

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