Ravi Menon: Economic and financial developments in Singapore Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), at the MAS’ Annual Report 2010/11 Press Conference, Singapore, 21 July 2011. *  *  *  Good morning. Welcome to MAS’ Annual Report press conference. I want to focus on four key themes with a forward looking orientation: first, prospects for GDP growth, second, the outlook for inflation, third, MAS’ financial accounts, and fourth, maintaining high standards of financial regulation. Let me begin with the economy. Singapore’s GDP growth forecast range remains at 5–7% for now, but uncertainties have clearly increased. As you know, economic growth took a sharp step-down in Q2 following the strong performance in Q1. First, disruption to regional supply chains in the aftermath of the Japan earthquake was much more severe than expected. Second, the rise in oil prices due to the unrest in the Middle East and North Africa has put a dampener on global demand. Singapore’s trade-related sectors bore the brunt of impact. Both manufacturing output and re-exports saw sequential declines in Q2. In year-on-year terms, GDP growth averaged 4.7% in the first half of this year. Looking at the second half of this year, the prognosis for global economy has taken on a more cautious tone. There is more uncertainty in US and Europe compared to three months ago. But we expect growth in our external markets to continue, albeit at a slow and uneven pace.
This objective is founded on my belief that the first two pillars gain sustainability only if the public understand the role of the central bank, its independence and its policy. Last but equally important, I would like to emphasise the need of cooperation and coordination with the fiscal policy. Fiscal policy and its impact are facts of life which can’t be ignored. Therefore, monetary and macro-prudential policies have to be designed and implemented in full awareness of its existence. A Central Bank does not live in an isolated island; its success will, among others, depend on its ability to act in coordination and cooperation with the fiscal policy, without losing its independence. Incorporating this understanding in the central bank theory and practice requires some adjustments and flexibility but, at the same time, requires that central banks preserve their focus and independence and acknowledge their limitations. Altogether these changes will allow the central bank and its inflation targeting regime to become a useful tool at the hand of the monetary authorities to preserve economic and financial stability in the post-Global Financial Crisis period. Thank you very much for your attention! BIS central bankers’ speeches  3