Ravi Menon: Monetary Authority of Singapore’s Annual Report 2011/12 Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Monetary Authority of Singapore’s Annual Report 2011/12 Press Conference, Singapore, 25 July 2012. *  *  *  Good morning. Welcome to MAS’ annual report press conference. I will focus on five key areas today. First, what is happening on the growth and inflation front; second, what does it mean for MAS’ monetary policy; third, how is MAS managing risks to our economic and financial stability; fourth, what MAS is doing to make our financial sector stronger; and fifth, how we are positioning Singapore’s financial centre for growth. Let me start with the economy. Growth and inflation Singapore economy remains on track to grow at 1–3% this year Singapore’s GDP growth averaged 4.2%1 in the first half of this year. But the growth momentum is clearly slowing. The average growth in the second half of the year is likely to be slower than in the first half of the year. This is not unexpected, and has been factored into whole year growth forecast of 1–3%. The global economy is slipping into a synchronised slowdown. The latest business surveys in all major jurisdictions have turned more negative. There is greater uncertainty in the US economy compared to three months ago, especially with respect to the labour market. The Eurozone remains mired in recession with no early end in sight. Financial market stresses have eased somewhat but the underlying vulnerabilities remain.
First, while exchange rate policy is effective against imported inflation and domestic cost pressures arising from rapid economic growth, it is less so against inflation in housing rentals and car prices. Even so, housing prices and car prices cannot keep rising rapidly in an environment of weakening economic growth. The measures taken to address supply-side issues in the housing market and public transport will also help to ease price pressures in these two areas. Second, too rapid a rate of appreciation of the Singapore Dollar can significantly hurt our economic performance, especially in light of heightened uncertainty in the external environment. In sum, exchange rate is taking longer than usual to moderate inflation, but it remains our broadest and most effective anti-inflation tool. MAS will continue to keep a close watch on developments in the global economy and price pressures in the domestic economy. The next Monetary Policy Statement will be released as scheduled in mid-October 2012. MAS remains focused on anchoring inflation expectations as economy undergoes restructuring to reduce dependence on foreign labour Looking at medium term, the domestic economic environment will remain challenging for monetary policy. The Singapore economy is making a transition towards productivity-driven growth. This will help to reduce our reliance on foreign labour and raise the wages of low-income Singaporeans. But rising wages must mean rising costs and rising prices, at  BIS central bankers’ speeches  3  least until productivity improvements kick in.