Monetary Authority of Singapore Annual Report 2010/2011
Chairman's  Message

Global economic growth recovered in 2010. Asia led the pick-up, driven by robust intra-regional trade and strong demand in domestic markets. The Singapore economy saw a pronounced upswing, growing by 14.5%, following its contraction in 2009.

Headline inflation rose to 2.8% last year, up from 0.6% in 2009. The surge in global food and oil prices contributed to higher local costs. Domestically too, strong economic growth and a tightening labour market exerted upward pressure on business costs, which were in turn passed on as higher prices to consumers. A significant contributor to domestic inflation, however, was the sharp rise in car prices, reflecting both the firmness in purchasing power and cuts in the supply of Certificates of Entitlements (COEs) for car purchases. MAS Core Inflation, which excludes the cost of private road transport and accommodation, was more moderate at 1.5% in 2010.

MAS moved pre-emptively to tighten monetary policy as the economy strengthened. We shifted to a modest and gradual appreciation of the exchange rate policy band in April 2010. Further tightening was undertaken in October 2010 and April 2011 as growth became more entrenched and resource constraints more binding. The tighter monetary policy stance will ensure price stability over the medium term and keep growth on a sustainable path.

For 2011, the underlying drivers of economic growth are expected to remain intact. However, the global expansion is moderating, and major vulnerabilities persist. The ongoing sovereign debt crisis in the European periphery poses significant risks - both to global economic growth and financial stability. Geopolitical tensions in the Middle East/North Africa region pose continuing uncertainties. Asia is facing rising inflation, caused primarily by higher oil, food and other commodity prices but also tighter labour markets. MAS will remain vigilant against this range of potential vulnerabilities.

We face a changed financial landscape globally following the crisis of 2008-2009. Our regulatory approaches in Singapore will evolve, whilst retaining the close monitoring and supervision of financial institutions that ensures that our financial system remains resilient and stable.

MAS has been an active contributor in the ongoing discussions on regulatory reforms at various international fora that aim at promoting long term global financial stability. These include the G20, Financial Stability Board, Basel Committee on Banking Supervision, Committee on Payment and Settlement Systems, International Association of Insurance Supervisors, International Organisation of Securities Commissions and Financial Action Task Force.

In banking, MAS welcomes the Basel III capital reforms. The higher requirements for quality and quantity of capital and other enhancements will strengthen the resilience of banks and contribute toward banking sector stability. MAS will require Singapore-incorporated banks to meet Basel III earlier than the Basel Committee's schedule, and at a higher standard.

In the capital markets, we implemented several safeguards for investors. MAS issued guidelines on the form and content of the Product Highlights Sheet, a plain language summary of the key risks and features of an investment product. We also enhanced investment guidelines by introducing a list of permissible investments for collective investment schemes, among other measures, and standardised the calculation of performance fees.

In line with the global move to regulate credit rating agencies, MAS engaged in public consultation on a proposed regulatory framework aimed at promoting the quality and integrity of the ratings process and strengthening the independence of credit rating agencies. MAS will also implement changes to fund management regulation, aimed at raising the quality of players and enhancing regulatory oversight to enable sustained growth of the industry.

The Government guarantee on non-bank deposits in banks, merchant banks and finance companies licensed by the MAS expired on 31 December 2010 without being triggered. The guarantee was put in place in October 2008 as an extraordinary measure, in response to blanket guarantees by other jurisdictions in the region, even though Singapore's financial system remained sound in the midst of the global financial crisis. In May this year, the Deposit Insurance Scheme was enhanced. The maximum level of coverage was raised from S$20,000 to S$50,000 per depositor, and coverage expanded to include all non-bank depositors. The Policy Owner's Protection Scheme was made a pre-funded scheme and enhanced to cover accident and health policies of life insurers.

Singapore's financial centre has continued to grow in prominence. As a whole, financial services expanded by 12% in 2010. Robust trade and capital flows, strong growth in Asian corporate activity, and increasing wealth accumulation in Asia have driven the demand for financial services. MAS will continue to support the development of Singapore as an international financial centre trusted for its high standards of regulation, integrity and efficiency.

The MAS Board of Directors has seen important recent changes. Mr Goh Chok Tong has stepped down as Chairman of the MAS Board, after seven years of distinguished service. MAS owes Mr Goh a lasting debt for his leadership during a most challenging and eventful period.

Mr Koh Yong Guan stepped down from the Board on 31 March 2011. Mr Koh had served on the Board since 1 June 1997. I thank him for his long-standing contributions to MAS, including two periods as Managing Director.

Mr Heng Swee Keat stepped down as Managing Director of MAS on 2 April 2011. On behalf of the MAS Board, I thank him for his strong and effective contributions as Managing Director since 1 June 2005. Mr Heng continues to serve as a Director on the MAS Board.

I welcome two new Directors to the Board: Mr Sundaresh Menon who joined on 1 November 2010 and Mr Ravi Menon, who took over from Mr Heng as Managing Director on 2 April 2011.

Finally, on the occasion of the 40th anniversary of MAS, I would like to offer my heartiest congratulations to its staff. The practice of central banking and financial sector oversight at MAS, to which staff past and present have contributed, has brought major benefit to Singapore in a vibrant financial services industry and high quality jobs for Singaporeans. I would also like to thank all financial industry players and our other partners for working alongside MAS in growing Singapore into a dynamic and well-respected international financial centre.