MAS: Annual report 2006 / 2007
CONTENTS
HOME
 
ENTERPRISE: Our Role
BUILDING ON A ROBUST MACROECONOMIC ENVIRONMENT
DEVELOPMENTS IN THE SINGAPORE SECURITIES MARKET
FOSTERING A SOUND & REPUTABLE FINANCIAL CENTRE
RISK MANAGEMENT & INFRASTRUCTURE
GROWING SINGAPORE AS AN INTERNATIONALLY COMPETITIVE FINANCIAL CENTRE
CURRENCY
ORGANISATIONAL INITIATIVES
ENTERPRISE: Our Role
BUILDING ON A ROBUSTMACROECONOMIC ENVIRONMENT 14
The World Economy: A Fourth Consecutive Year Of Robust Global Growth 14
Box 1 -Economic and Financial Integration in East Asia 15
International Financial Markets: A Cautionary Note Against Abundant Liquidity 17
Strong Capital Inflows Make Asia Vulnerable To Shifting Risk Appetites 19
The Singapore Economy: Sustained and Broad-based Strength 20
Growth was Broad-based Across Key Sectors of the Economy 21
Labour Market Conditions Continued to Strengthen 21
Inflationary Pressures Remain Largely Co ntained,  
  In Part Reflecting the Effects of Globalisation 21
Monetary Policy - An Anchor for Price Stability in A Strong Economy 23
Strengthening the Monetary Policy Formulation Process 23
Pushing the Frontier of Monetary Policy Research and Analysis 23
Box 2 - Enhancing Liquidity Management: The MAS Standing Facility 24
 
Strong Capital Inflows Make Asia Vulnerable To Shifting Risk Appetites
Asian currencies continued along their strengthening trend, amidst positive current account positions and strong capital inflows into regional markets (Charts 7, 8 & 9). These inflows have been led by bullish sentiment, on the back of positive growth and low inflation expectations, as well as abundant liquidity and the global search for yield. While the strong inflows have brought about some positive developments – including stronger external balances, lower domestic interest rates as well as moves to further liberalise current and capital accounts – they have also resulted in a run-up in asset prices and rapid monetary and credit expansion in some countries. In addition, the equity market sell-off in February-March this year highlights that financial conditions in Asian economies remain vulnerable to shifts in foreign investors’ risk appetites. The unwinding of carry trades is also a risk to Asian markets which are reliant on portfolio flows.

Going forward, should foreign investors re-adjust upward their risk premia, a sharp reversal of short-term capital flows could take place and lead to another bout of volatility in regional financial markets. While conditions underpinning financial stability appear to be firmly intact at present, MAS will continue with close surveillance, as well as ensure the adequacy of buffers in the financial system to contain the impact of market volatility.