CHAIRMAN'S

MESSAGE

This year's MAS Annual Report comes at a time of heightened uncertainty around the world. Global growth is generally weak. The recovery in the advanced economies is hesitant and uneven despite extraordinarily accommodative monetary policies, and hampered in several instances by a weakened political consensus on future directions. In Asia too, the momentum of growth is slowing, amid a multi-year restructuring of the Chinese economy, lacklustre demand in key export markets and the slow pace of domestic reforms in some economies. The unpredictable consequences of the UK vote to leave the European Union further dented confidence globally.

Against the weak external environment, the Singapore economy is projected to expand by 1-3% this year. Selected clusters of trade-related activities will continue to expand alongside regional growth. Among the domestically-oriented sectors, there is steady demand in infrastructure and for healthcare and education.

Inflation remains subdued. Headline inflation has been negative for some time but could turn positive towards the later part of this year. MAS Core Inflation, which excludes the costs of accommodation and private road transport, is also anticipated to rise gradually over the course of 2016. However, the increase in core inflation will be dampened by weaker external growth and reduced tightness in Singapore's labour market.

"Against the weak external environment, the Singapore economy is projected to expand by 1-3% this year. Selected clusters of trade-related activities will continue to expand alongside regional growth."

MAS' monetary and financial policies aim to preserve stability and confidence in the future amidst global economic fragility, and the generally soft inflation environment.

In April 2016, MAS set the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band at zero percent. The move represented the culmination of a series of measured steps MAS had taken to reduce the rate of appreciation of the policy band in January and October last year. It recognised the subdued inflation outlook over the next year, while ensuring price stability into the medium term.

"MAS' monetary and financial policies aim to preserve stability and confidence in the future amidst global economic fragility, and the generally soft inflation environment."

Since 2009, MAS has strengthened existing rules on property financing and introduced new measures to ensure stability in the property market and to encourage financial prudence among borrowers. A full-scale property bubble has been averted, and property prices are declining at a measured pace. MAS will continue to monitor the property market, together with other government agencies.

We have continued to keep a close watch on risk management practices and culture in Singapore's financial sector. A thematic inspection of banks' credit underwriting standards showed that practices were generally sound. As part of ongoing efforts to strengthen the resilience of the financial system, MAS has put out proposals to enhance its powers to facilitate the orderly and efficient resolution of distressed financial institutions.

Singapore's financial centre is built on a bedrock of trust and integrity. MAS requires financial institutions to have robust controls in place to prevent money laundering and terrorism financing and will not hesitate to take actions against financial institutions which fail to meet requirements. In 2015, MAS issued reprimands to several financial institutions and imposed financial penalties for deficiencies in their controls. On 24 May 2016, MAS ordered a merchant bank to be shut down for serious breaches of anti-money laundering requirements.

We have introduced several initiatives to safeguard investors' interests while expanding their savings and investment options. MAS refined its rules to make it easier for eligible corporates to offer bonds to retail investors. Together with the Ministry of Finance, we introduced the Singapore Savings Bonds programme to provide Singaporeans with a safe, long-term savings option. More recently, MAS set out its regulatory approach to securities-based crowdfunding. It aims to facilitate access by start-ups and small and medium enterprises to alternative platforms for raising funds, while ensuring sufficient safeguards for investors.

Supporting MAS' efforts to safeguard consumer interest are on-going financial education programmes by the national financial education programme, MoneySENSE. A series of educational campaigns carried in both traditional and new media helped to drive home important financial literacy messages, such as using credit wisely and saving and investing early.

Despite the headwinds to global growth over the past year, the Singapore financial sector continued to perform well and was a major contributor to overall economic growth. MAS is working with the industry to facilitate the flow of long-term funds to support infrastructure development, especially in the Asian region. This includes work to facilitate the transfer of bank financing of infrastructure to institutional investors, and the creation of performance benchmarks to allow investors to better assess the risks and returns of infrastructure projects.

As part of the national SkillsFuture agenda, MAS and the National Trades Union Congress (NTUC) have led the Financial Sector Tripartite Committee (FSTC). The FSTC brings together the industry associations, government and labour movement, to foster a versatile financial sector workforce, well-equipped to embrace the opportunities and future needs of the financial industry.

We are also developing a Smart Financial Centre that leverages effectively on technology. In August 2015, MAS formed a new Financial Technology and Innovation Group to catalyse the growth of a vibrant FinTech ecosystem. Several global financial institutions have since established innovation labs in Singapore to develop and test bed new products for the region. We are also seeing progress in the adoption of electronic payments in Singapore. These efforts involve streamlining payment card acceptance infrastructure at merchants through unified Points-of-Sale (POS) terminals, and increasing the adoption of real-time payments through the Fast and Secure Transfers (FAST) system.

"Despite the headwinds to global growth over the past year, the Singapore financial sector continued to perform well and was a major contributor to overall economic growth."

This year marks MAS' 45th anniversary. Over the years, MAS has become highly regarded internationally, both as a central bank and an integrated financial regulator. Singapore is also ranked among the leading financial centres in the world today. In February 2016, we launched the MAS Gallery, with the aim of helping the public understand the mission and roles of the MAS. It also reflects the outcomes of the hard work and professional expertise of MAS staff over the years, in promoting the growth and stability of the Singapore economy and financial system. On behalf of the Board, I would like to thank all MAS staff, past and present, for their invaluable contributions to building a credible central bank and financial regulator.

Tharman Shanmugaratnam
Chairman