6  BIS central bankers’ speeches
We can expect stronger domestic price pressures over the next few years, and hence slightly higher inflation than we have seen historically. Slightly higher inflation does not mean runaway inflation. MAS will remain vigilant and calibrate monetary policy to ensure that this does not happen. We will not allow inflationary pressures to become entrenched or inflation expectations to build up. Managing risks to economic and financial stability MAS is preparing for risks to economic and financial stability posed by escalation of Eurozone crisis Besides watching growth and inflation trends, MAS has been focusing on downside risks to Singapore’s economic and financial stability. We monitor the risks closely, take steps to mitigate these risks where we can, and draw up contingency measures to manage them if they materialise. The key risk facing the Singapore economy and financial system is the ongoing crisis in the Eurozone. While Eurozone governments have taken important steps to deal with crisis, we must be prepared for a more adverse turn of events. The escalation of the Eurozone crisis can affect Singapore in three ways: first, the impact on economic growth; second, stresses on our financial markets; and third, the safety and soundness of our financial institutions. Let me begin with economic growth. A deeper recession and credit crunch in Eurozone can impact our growth through trade and financial channels. The trade channel will be more direct and impactful. The Eurozone is our largest export market, and Singapore’s exports to the Eurozone have been declining since Q3 last year.