CHAIRMAN'S

MESSAGE

The policies and operations of the MAS take place in the context of a moderate expansion of both the global and Singapore economies, a relatively soft domestic inflation outlook, and continued strength and new opportunities in the financial sector.

The global economy is expected to grow modestly in 2015, underpinned by a firmer expansion in the advanced economies. In the US, the Fed is moving closer towards the process of monetary policy normalisation, amid an improving economic outlook. The Eurozone economy is seeing gradual improvement, while economic activity in Japan is recovering as the drag from the consumption tax hike dissipates. China's growth is likely to continue moderating alongside ongoing structural reforms. The rest of Asia should benefit from improvements in exports and lower oil prices.

Against this backdrop, the Singapore economy is expected to expand at a moderate pace of 2-4% this year, in line with its medium-term potential of 3% on average. Gradual improvement in the global economy will provide some upside to Singapore's external-oriented industries, while domestic services industries are likely to stay resilient.

Inflation is expected to ease this year, following higher than usual price increases during 2010 to 2013. MAS Core Inflation, which excludes the costs of accommodation and private road transport, is anticipated to be significantly lower than in recent years, as the decline in global oil prices and enhanced government healthcare subsidies filter through more significantly to domestic prices. Coupled with disinflationary effects from a higher expected supply of Certificates of Entitlement and housing, CPI-All Items inflation will likely show a further decline in 2015. Nonetheless, the labour market is at full employment and will remain tight. This should in turn support wage growth and some pass-through of cost pressures, while improvements in productivity take time to materialise.

In January 2015, MAS reduced the slope of the S$ nominal effective exchange rate policy band, while maintaining the band on a modest and gradual appreciation path. This was a measured step, in line with the more benign inflation outlook. The policy stance was subsequently affirmed in April 2015. MAS remains vigilant in ensuring that cost pressures are contained over the medium term and inflation expectations are well-anchored.

Earlier this year, MAS published a framework for identifying and supervising domestic systemically important banks. The framework allows MAS to identify banks that can have a significant impact on the stability of the financial system and apply additional supervisory measures to strengthen their ability to withstand various shocks. MAS is also reviewing the risk-based capital framework for insurance companies. The review aims to make the framework more risk sensitive and comprehensive.

"The Singapore economy is expected to expand at a moderate pace of 2-4% this year, in line with its medium-term potential of 3% on average."

In the face of growing concerns globally about cyber security, MAS partnered the Association of Banks in Singapore to test the security of key IT systems at major financial institutions. A business continuity exercise based on a cyber-attack scenario was also held, with participants from the banking, insurance and capital market sectors. These exercises helped to strengthen the financial industry's readiness to manage multiple and concurrent cyberattacks that could disrupt critical systems or result in data loss.

MAS and the Singapore Exchange announced several measures to strengthen Singapore's securities market structure and practices. These include introducing requirements for a minimum trading price, collateral for securities trading, and reporting short selling of securities and publishing aggregate short positions.

To deliver more effective enforcement outcomes, MAS and the Commercial Affairs Department have commenced joint investigations of market misconduct offences such as insider trading and market manipulation.

Over the past year, MAS introduced for public consultation a range of proposals aimed at safeguarding investors' interests, and expanding their savings and investment options. We proposed guidelines on good drafting practices for prospectuses to help retail investors better understand the information contained in them. In the fixed-income market, MAS proposed refinements to the current rules to make it easier for eligible corporates to offer bonds to retail investors. Together with the Government, MAS introduced the Singapore Savings Bonds programme to provide individuals with a safe, long-term savings option.

MAS launched compareFIRST, an interactive web portal that allows consumers to compare similar life insurance products offered by different insurance companies in Singapore, and make more informed decisions when buying life insurance policies. MAS also worked with the insurance industry to introduce direct purchase insurance, a class of simple life insurance products that is sold without financial advice. They are cheaper than comparable life insurance products as no commissions are charged.

MAS also put in place new unsecured credit rules to encourage financial prudence amongst borrowers and prudent lending practices by financial institutions. The new rules require financial institutions to ask borrowers for their preferred credit limits and seek their consent in writing before any credit limit increase is granted. Financial institutions are also required to make a holistic assessment of borrowers' repayment capacity, total credit limits and aggregate outstanding debt balances across all financial institutions.

"Together with the Government, MAS introduced the Singapore Savings Bonds programme to provide individuals with a safe, long-term savings option."

The financial sector has done well over the last year. We continue to see broad-based growth across the banking, insurance, capital market, asset and wealth management industries, and Singapore has established itself as the second largest offshore RMB centre globally. MAS will work with the industry to strengthen capital market infrastructure and connectivity, facilitate the flow of long-term funds to support the infrastructure needs of the region, and deepen our RMB ecosystem.

To strengthen the pillars for long term growth, MAS will invest in developing financial sector capabilities on two broad fronts: SkillsFuture and FinTech.

SkillsFuture will focus on deepening skills at all levels of the financial sector workforce, and preparing for future needs in a rapidly changing global and local financial landscape. MAS is working closely with the financial industry, institutes of higher learning, and training providers to ensure a strong pipeline of Singaporean talent for the financial sector, and help existing professionals upgrade and develop new capabilities as job roles evolve.

The FinTech agenda seeks to spur innovation, increase productivity, and enhance customer service through the pervasive use of technology. MAS aims to create a vibrant FinTech ecosystem through industry collaborations in areas such as data analytics and digital payments, encouraging financial institutions to set up innovation laboratories in Singapore to test-bed solutions, and providing a conducive regulatory environment for innovation.

"SkillsFuture will focus on deepening skills at all levels of the financial sector workforce, and preparing for future needs in a rapidly changing global and local financial landscape."

This year marks Singapore's 50th year as a nation. Our success as a trusted, robust, and dynamic international financial centre has only been possible through an active partnership between MAS and the financial industry. MAS has also collaborated with other Government agencies in ensuring effective macroprudential policies, especially aimed at stabilising the property market. I would like to thank all our partners for their support.

Tharman Shanmugaratnam
Chairman