Monetary Authority of Singapore Annual Report 2011/2012
Chairman's  Message

Four years on, the global financial crisis is still with us. The combination of weak banking systems and overstretched government balance sheets in several European economies has severely eroded investor confidence. Unemployment is at exceptionally high levels in the US and Europe, and still worsening in the latter. Early improvement is unlikely in most of the advanced economies, and downside risks remain high. In Asia, notwithstanding the support from rising domestic demand, growth will be dampened by lacklustre export performances.

Against this external backdrop, Singapore should experience a modest pace of expansion in 2012, well below GDP growth of 4.9% in 2011. The labour market, however, remains at close to full employment levels.

Inflation in Singapore has picked up, alongside the firm economic growth of the past two years and the rise in global commodity prices. Core inflation has risen gradually, although headline CPI inflation has increased sharply. The CPI-All Items inflation rose from 2.8% in 2010 to 5.2% in 2011, before moderating slightly in the first five months of 2012. The main contributors have been increases in imputed rentals on owner-occupied accommodation, which do not involve actual expenditure, and the spike in prices of Certificate of Entitlements for cars. MAS Core Inflation, which excludes the costs of accommodation and private road transport, was more moderate at 2.2% in 2011 and 3% in January-May 2012.1 Inflationary pressures are expected to ease gradually in H2 2012.

Accordingly, MAS’ monetary policy targeted a stronger rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER), except for a temporary reduction in the slope of the policy band in October 2011 due to heightened uncertainty arising from the Euro zone crisis. Our monetary policy stance was aimed at anchoring inflation expectations and ensuring price stability over the medium term, while providing some underpinning for economic growth in an uncertain and volatile external environment.

Singapore is a small economy that is plugged into the international system. Despite the turmoil in the global economy these past few years, MAS has kept our financial system stable and resilient, through sound regulation of financial institutions and rigorous supervision. MAS places a high priority on contributing to global financial stability and continues to play an active role in reshaping the international regulatory landscape.

In the banking sector, MAS will require Singapore incorporated banks to meet capital adequacy standards that are higher than the Basel III standards issued by the Basel Committee on Banking Supervision (BCBS). These banks will have to meet the Basel III minimum capital adequacy standards by 1 January 2013, ahead of the BCBS’ January 2015 timeline. In addition, from 1 January 2015, they are required to meet a minimum Common Equity Tier 1 capital adequacy ratio (CAR) of 6.5%, Tier 1 CAR of 8% and Total CAR of 10%, above the Basel III minimum requirements of 4.5%, 6% and 8% respectively. Going forward, MAS is also looking to enhance capital standards for Capital Markets Services licence holders.

MAS supports the G20 objective of enhancing OTC derivatives regulation by requiring all transactions to be reported to a trade repository and all standardised contracts to be cleared through central counterparties. Preparatory work towards setting up a regulatory regime for the OTC derivative market has commenced. We have carried out a public consultation on this important initiative, and expect the first legislative amendments to the Securities and Futures Act to take place in 2012. To facilitate the implementation of OTC derivative regulations, the Singapore Exchange AsiaClear has expanded its clearing services to some interest rate swaps and non-deliverable forward contracts. Depository Trust & Clearing Corporation will also be setting up a global trade repository in Singapore in 2012.

In the insurance sector, MAS will be enhancing its insurance group-wide supervisory practices by establishing a group-wide supervision framework that is aligned with the new international standards issued by the International Association of Insurance Supervisors. The enhancements, which serve to supplement the solo supervision of the individual entities within the group, will enable MAS to monitor the financial health of insurance groups more effectively.

The financial crisis also highlighted the uncertainties of the global environment,and the need to enhance protection of retail investors. On 1 January 2012, MAS introduced new requirements on the sale of Specified Investment Products (SIPs), which are more complex investment products. These included requirements for intermediaries to assess a retail customer’s knowledge and experience before selling SIPs to the customer. Customers who lack the relevant knowledge or experience must be given financial advice before purchasing unlisted SIPs. For listed SIPs, intermediaries must, amongst other requirements, give such customers an explanation of the general features and risks associated with investing in derivatives before opening an account for them to trade SIPs. We have also started a review of the financial advisory industry to raise standards and lower distribution costs.

Singapore is active in global efforts to combat money laundering, terrorism financing and proliferation financing. As a member of the Financial Action Task Force (FATF), MAS has been engaged in the revision of the FATF Recommendations to strengthen global resilience against the evolving risks. Singapore is fully committed to implementing the new FATF Recommendations. As an international financial centre, Singapore remains vigilant against illicit funds that could threaten its integrity.

In April 2012, MAS committed a US$4 billion contingent line of credit to the International Monetary Fund (IMF), as part of a major international effort to provide the IMF with sufficient resources at a time of heightened global risks. The IMF plays a key systemic role in supporting stability in the global economy, for the benefit of all its members. As of June 2012, the IMF had received bilateral commitments amounting to US$456 billion. Similar to their quota-based capital subscriptions to the IMF, the resources that countries have committed to lend the IMF will remain part of their Official Foreign Reserves, including after their loans re activated. The new loan agreements will only be activated by the IMF if its existing resources fall below a critical level.

Playing an important role in regional stability is the ASEAN+3 Macroeconomic Research Office (AMRO), which is located in Singapore. AMRO is the independent macroeconomic surveillance unit of the Chiang Mai Initiative Multilateralisation Agreement, a US$120 billion currency swap arrangement among the Finance Ministries and Central Banks of the ASEAN Member States, China, Japan and Korea (ASEAN+3 countries). AMRO officially opened on 31 January 2012, and is already developing a credible reputation. MAS and the Ministry of Finance are fully committed to supporting AMRO in financial and administrative matters, as it expands over the next few years and builds up its capabilities.

Singapore’s financial centre posted a healthy 9% growth in 2011 despite challenging market conditions in the second half of the year. Our strong fundamentals continue to underpin growth. With the continued rise of Asia, which will result in increasing trade in goods and services as well as the flow of capital within the region and with the rest of the world, Singapore is well-positioned to facilitate these flows. MAS will continue to encourage and support the development of Singapore as a key international financial centre.

Mr Teo Ming Kian stepped down from the MAS Board on 1 June 2012. He had served on the Board and as the Chairman of the Audit Committee since 1 October 2006. Mr Sundaresh Menon will be appointed as a Judge of Appeal of the Supreme Court on 1 August 2012 and has hence resigned from the MAS Board as of 15 June 2012. On behalf of the Board and Management of MAS, I thank them both for their active and invaluable contributions. I also welcome two new Directors to the Board - Mr Lawrence Wong Shyun Tsai who joined on 10 June 2011, and Professor Tan Chorh Chuan who joined on 1 June 2012.


Tharman Shanmugaratnam


1   Excluding only imputed rentals on owner-occupied accommodation and car prices, inflation was 2.5% and 3.2% in 2011 and the first five months of 2012 respectively.