Good morning.  Thank you for attending this press conference.  I would highlight some of the key issues for MAS this past year and the focus for us moving forward.  Let me start with a quick review of the economy.

Review of the Economy

2   Despite the recent volatility in financial markets, global economic fundamentals remain strong.  Corporate earnings are robust and labour markets are strengthening in the major economies.  While global monetary conditions may be further tightened in response to the potential risk of higher inflation, this is taking place in the context of relatively robust economic growth.

3   Rising tensions in the Middle East have recently pushed up oil prices further.  The futures market suggests that oil prices are expected to stay at these elevated levels of about US$80 a barrel.  The world economy has thus far been resilient to higher oil prices.  However, the risks of a sharper slowdown due to supply side disruptions have now increased and clearly, geopolitical developments will have an important bearing on the evolution of oil prices, financial markets and the real economy going forward. 

4   While US growth may moderate somewhat, overall external demand is held up by improving conditions in Europe and Japan, as well as continued robust expansion in China and India. 

5   The Singapore economy grew by a robust 6.4% last year. Looking ahead, the factors that underpinned the growth of the Singapore economy in 2005 will continue to support the expansion this year.  Thus far, the economy has expanded by an estimated 9% (year-on-year) in the first half of this year, based on the advance estimates released last week.  Although global IT demand growth may be capped somewhat by potentially slower growth in the US in H2 2006, the prospects for continued economic growth in the quarters ahead appear intact.  Barring any unexpected shocks in the external environment including an escalation in geopolitical risks in the second half of this year, GDP growth for the year as a whole is likely to be in the range of 5 to 7%.

6   Although the pass-through of high oil prices on both energy-related consumer items and business operating costs are expected to strengthen, our overall domestic inflationary pressures should be fairly well contained. 

7   Taking into account the growth and inflation prospects, MAS' assessment is that our current policy stance of a modest and gradual appreciation of the S$NEER, with no re-centering of the band, nor any change to its slope or width, remains appropriate.  We will continue to monitor and assess external and domestic economic conditions. 

Financial Markets

8   In June, we published our semi-annual assessment of the stability of the financial system.   Not surprisingly, given the good macroeconomic performance of the economy, our assessment was that the financial system remains sound and robust and is in a strong position to weather the risks in the external environment.  In particular, the banking, corporate and household sectors are doing well and their balance sheets have strengthened over the past year.     

9   Rising wealth in Asia and the focus on Asian growth prospects have resulted in more allocation of assets to the region by investors. This, coupled with high regulatory standards that are responsive to investors' demand, have created a high level of trust and confidence in Singapore's financial sector. 

10   Our financial services sector continues to perform well, growing at 6.5% in 2005. It is expected to record further expansion this year.  Offshore-related activities have generally performed well over the first half of 2006, and are expected to be a key growth catalyst in the months ahead. Although domestic equity prices were also hit by the worldwide sell-off in May and June, this followed a period of strong run-up in asset prices and did not reflect a shift in underlying fundamentals. The outlook for the domestic fund management industry is positive and banking lending activities are expected to remain firm this year.

11   As announced last week, at end-2005, total assets managed by Singapore-based financial institutions was reported to be S$720.4 billion, a 26% growth over S$572.6 billion reported at end-2004. 

12   The corporate debt market saw continued positive developments. While SGD corporate debt issuance slowed slightly as a result of the interest rate environment, the market saw increased diversity in issuer profile in the past year, with first-time issuance from a number of Middle Eastern and Latin American entities. Reflecting the sophistication of investors, structured debt continued to account for a significant proportion of SGD debt issuance. Issuance of commercial mortgage-backed securities remained strong on the back of a healthy REITS market.  Local asset managers have also become more active in Collateralised Debt Obligation (CDO) origination. Last year, the market saw the issuance of a US$1 billion asset-backed securities CDO. This year, we expect a continued strong pipeline of SGD debt issuance as SGD-swap spreads have widened. In the first quarter of this year, SGD issuance reached $7.4 billion, almost twice the level a year earlier.

13   With the growth in wealth management and an increase in more sophisticated investors, we see growing interests in alternative asset classes. There has been a significant growth in the demand for alternative investments such as hedge funds, real estate and infrastructure investments and commodity derivatives.

Supervisory Developments

14   Along with these developments of financial sector activity, we need to ensure that our regulatory framework remains appropriate and robust. 

15   Trust companies have now been brought under MAS' regulatory framework. This ensures a unified regulatory oversight of trust services, private banking and wealth management activities. A new Payments System Oversight Act was passed by Parliament earlier this year.  This new Act will enable us to better regulate the systemically important payments systems. 

16   On the supervisory front, we continue to work on the Common Risk Assessment Framework and Techniques (CRAFT). A single risk assessment framework seeks to harmonise the risk assessment language and methodologies and ensure that similar risks are assessed consistently across the industries.  CRAFT is designed to be sufficiently flexible to cater to the different nature, scope, complexity and risk profile of the different classes of institutions that we supervise across our various departments. 

17   We are also strengthening our internal quality assurance activities for risk-based supervision of financial institutions so as to further improve the quality and consistency in the implementation of risk-based supervision within and across different sectors.  We plan to publish more information about MAS' risk-based supervision, including CRAFT, in a monograph. This is to help the industry better understand our supervisory  approach.

18   As you know, locally incorporated banks will migrate to Basel II in January 2008. We have been working closely with them to assess the impact of Basel II and determine how best to implement the proposals in Singapore.  In addition, we are working with an industry group to look into the disclosure requirements and regulatory reporting under the new framework.  MAS has initiated a supervisory validation process for banks that intend to use the more sophisticated approaches for credit risk measurement.  This would involve conducting onsite visits to assess the banks' risk management practices and governance framework. 

19   We expect a smooth transition to the new framework and we believe that Basel II implementation will enhance the banks' risk management capabilities. This will in turn sharpen the banks' competitive edge, so that they will be better able to identify and manage the risks and seize the opportunities in a financial services market that is becoming more globalised and complex.

20   Let me now move on briefly to our accounts. Compared to the previous year, MAS posted a lower net profit of $1,216 million for the year as global interest rates rose and the Singapore dollar appreciated against the major currencies.  Total expenditure rose $255 million to $812 million, mostly due to higher interest rates and investment expenses.

Singapore 2006

21   In less than two months, Singapore will host the Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group. As co-chair of the organising committee, we have devoted much time, effort and resources in putting this significant international event together.  As this will be the first Annual Meetings to take place in Asia since 1997, Singapore 2006 will be an important opportunity for us to demonstrate the significant developments and structural reforms that have taken place in this region since the Asian Financial Crisis.  With the rise of China and India, and the resurgence of ASEAN, it will be timely for the international financial community to gather again in Asia to review and discuss developments, exchange ideas and explore collaborations.

22   Singapore's role in hosting the 2006 IMF-WB Annual Meetings also reflects our role as a global citizen in supporting global developments and our commitment to the international financial community.
 
23   To conclude, we remain focused on promoting sustained non-inflationary economic growth,and a sound and progressive financial sector.

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