This baseline scenario assumes a policy framework that the measures outlined in our exit strategy are completed by the end of the year, and that policy rates are kept constant at current levels for some time followed by limited increases starting from the last quarter of 2011, with policy rates staying at single digits throughout the forecast horizon (in other words, 3 years). In this respect, noninterest instruments will be actively used in order to address the risks on financial stability stemming from rapid credit expansion and deterioration in the current account balance. The European Central Bank reluctantly joined the ranks of the Federal Reserve, Bank of England and Bank of Japan that have engaged in monetary expansion due to fast-growing debt problems in Europe. As a result, materialization of the first scenario has become more likely, as illustrated in the right-hand part of the chart. In that case, the scenario described in our Inflation Report of October 2009 might come up on the agenda. According to this scenario, on account of the expansionary fiscal and monetary policy on a worldwide scale, coupled with rising risk appetites and the relative improvement of credit risk across emerging markets including Turkey, capital inflows to these countries will continue to hold strong. The low level of resource utilization as well as the strong tendency of cost shocks, which reduce the prices of imported inputs, to reflect upon consumer prices suggests downside risks on inflation in the short term.
Within Asia, the ASEAN-5 (Association of Southeast Asian Nations-5) countries3 are expected to expand by 5 to 6% this year and their external trade volume will reach around 60% that of China. ASEAN, which is a two-trillion-dollar economic grouping, is the fifth largest in the world in terms of purchasing power parity. ASEAN countries have been working steadily together towards greater economic integration and have committed to build the ASEAN Economic Community, a single market and production base, by 2015. 4. In 2010, MENA as a whole grew 3.8%, led principally by the Gulf Cooperation Council (GCC) economies. Considering the uncertainty in parts of MENA, the IMF nevertheless still expects the GCC to grow by 7.8% this year, driven by the robust expansion of oil production and strong public spending. The medium-term outlook remains good as countries in the region lay the foundation for sustainable and diversified growth. 5. Asia will become increasingly important for the GCC as the patterns of trade, investment and consumption shift from the West to the East. To reap greater benefits from these highly dynamic and fast-expanding regions, we should press on towards the goal of growing connectivity and deepening economic cooperation between our two regions. We  1  Sources: Monetary Authority of Singapore, Consensus Economics Inc, weighted by shares in Singapore’s NODX. 2  IMF, Regional Economic Outlook: Asia and Pacific, April 2011. 3  ASEAN-5 comprises Indonesia, Malaysia, Thailand, Philippines and Singapore.