CHAIRMAN'S

MESSAGE

The recovery in the global economy has entered a new phase. The advanced economies, which have experienced a slow and protracted recovery from the global financial crisis, are expected to provide much of the impetus for growth in the coming year. The United States is seeing continued labour market strengthening and resilience in private consumption, enabling it to begin a gradual process of normalising monetary policy. In the Euro zone, financial stresses are receding, supporting a modest recovery from recession. Japan has experienced a spurt in growth, aided by unprecedented monetary easing. Asia could benefit from a slight uplift in exports this year, although tighter financial conditions and pockets of political uncertainty are weighing down on domestic demand. Growth in China, still a major engine of the world economy, is expected to moderate as it seeks to rein in the shadow banking sector and restructure its economy.

Global financial resilience has also improved. Bank balance sheets have seen further repair in the advanced economies. Asian banks could face some headwinds from slower economic growth, normalisation of global monetary conditions, and moderation in asset prices. But they remain anchored by healthy capital buffers and sound funding profiles.

The Singapore economy has shifted to a path of lower growth, constrained by slower labour force growth. In this context, the economy grew by a relatively strong 3.9%, compared with 2.5% in 2012. CPI-All Items inflation eased to 2.4% in 2013 from 4.6% in 2012, with the sustained appreciation of the Singapore Dollar dampening imported inflation and policy measures to contain Certificate of Entitlement price increases and property market rentals bearing fruit.

With the gradual improvement in the global economic environment, our economy should see growth of 2-4% this year. CPI-All Items inflation is projected to average 1.5-2.0% in 2014. However, MAS Core Inflation which excludes the cost of accommodation and private road transport is expected to remain firm at 2-3% during this period of economic restructuring. This is higher than the historical norm, and is underpinned by the persistence of a tight labour market while improvements in productivity growth take time.

MAS will remain vigilant in ensuring that cost pressures are contained over the medium term, and inflation expectations are well-anchored. Our monetary policy stance has been consistent with that aim. The slope of the S$ nominal effective exchange rate policy band was kept on a modest and gradual appreciation path in April and October 2013, and in April 2014.

The International Monetary Fund conducted a rigorous assessment of Singapore's financial system in 2013 under its Financial Sector Assessment Programme. The assessment affirmed Singapore's standing as a sound and stable financial centre. It found Singapore's regulatory and supervisory frameworks and practices to be among the best globally. The financial system was also assessed to be resilient against robust stress test scenarios.

"The International Monetary Fund conducted a rigorous assessment of Singapore's financial system in 2013... (and) found Singapore's regulatory and supervisory frameworks and practices to be among the best globally."

MAS introduced further measures in 2013 to sustain financial stability and foster prudence among financial institutions and borrowers. We introduced a Total Debt Servicing Ratio (TDSR) framework in June 2013 to govern property loans granted by financial institutions. The TDSR will help strengthen FIs' credit underwriting practices over the long term and encourage financial prudence among borrowers. More immediately, it has had a salutary effect in cooling the property market.

Together with the Singapore Exchange (SGX), MAS launched a public consultation on measures to strengthen the securities market. MAS and SGX had, following a review of the securities market structure and practices, developed proposals to promote orderly trading and responsible investing, enhance the transparency of market intervention measures, and strengthen the process for admitting new listings and enforcement against listing rule breaches.

MAS has been working closely with the industry in implementing the recommendations of the Financial Advisory Industry Review (FAIR). These include a direct channel for consumers to buy life insurance products without having to pay commissions, a web aggregator for consumers to compare life insurance products, and a balanced scorecard remuneration framework to promote professional and ethical conduct among advisers. The FAIR initiatives will raise the standards and professionalism of the financial advisory industry, and encourage greater efficiency in the distribution of life insurance and investment products in Singapore.

2013 also marked the 10th anniversary of MoneySENSE, the national financial education and literacy programme that MAS has led, alongside various government agencies and financial industry associations. MoneySENSE has reached out to Singaporeans from all walks of life, through a wide range of channels including school programmes, workplace talks, community events, public seminars, and the mass and social media. In the coming years, we will step up efforts to tailor financial education and outreach to the different segments of the population, such as low-income families and senior citizens as well as couples getting married. We will also equip social workers with basic financial knowledge so that they can better support Singaporeans seeking help.

Singapore continues to actively support global efforts to combat money laundering and the financing of terrorism. Together with the Ministry of Home Affairs and the Ministry of Finance, MAS published Singapore's first National Money Laundering and Terrorist Financing Risk Assessment (NRA) report in January 2014. Most of the industries covered by the report, including banks and casinos, were found to have robust preventive regimes. MAS is working to further strengthen the frameworks for anti-money laundering and countering the financing of terrorism

"The FAIR initiatives will raise the standards and professionalism of the financial advisory industry, and encourage greater efficiency in the distribution of life insurance and investment products in Singapore. "

MESSAGEin the segments identified for improvement in the report, including remittance agents, money-changers, and internet-based stored value facility holders. We are also introducing new regulations to address risks entailed in virtual currency intermediaries.

The launch of RMB clearing services in Singapore in May 2013 marked a significant milestone. We have taken active steps to support RMB market development, including enhancing the People's Bank of China-MAS Bilateral Currency Swap Arrangement and the MAS RMB Facility. The introduction of RMB cross-border channels between Singapore and Suzhou Industrial Park and Tianjin Eco-city, and the RMB Qualified Foreign Institutional Investor programme, should also enable greater RMB flows between China and Singapore. In addition, MAS will be working to foster greater connectivity and cooperation between the key RMB centres globally.

MAS is also working actively to sustain Singapore's development as a financial centre and provide good career opportunities for Singaporeans in the industry.

We will continue to support the growth of globally competitive teams in Singapore, and work with key financial institutions to develop promising Singaporean talents in the industry. This includes structured programmes to groom Singaporeans for future leadership positions through rotation across various business lines and taking on overseas assignments. A new Asian Financial

"We will continue to support the growth of globally competitive teams in Singapore, and work with key financial institutions to develop promising Singaporean talents in the industry."

Leaders Programme will be launched to equip local practitioners with Asia-relevant leadership capabilities and prepare them for senior regional and global positions.

I would like to thank the financial industry players and our partners who work alongside MAS, and the management and staff of MAS, for their continued commitment to achieving sustainable growth and developing Singapore as a dynamic and well-respected international financial centre.

Tharman Shanmugaratnam
Chairman