There are growing concerns that uncertainty in financial markets will lead to a loss of confidence and result in a more general credit squeeze. This will in turn hurt investment and consumption in the US and Europe. If growth slows in these major economies, Singapore will be affected. Strong growth in the region and the diversity of our export markets will provide us some buffer, but we are not immune to a slowdown in the major industrial economies. At this stage, although the risks have increased, it is not clear that there has been significant spill-over into the real economy. Barring the unforeseen, MTI’s growth forecast of 7-8% for this year remains unchanged.

Taking a longer term perspective, the current shakeout in the sub-prime market, if well-managed and contained, can yield some positive outcomes. If it results in more realistic risk assessments and stronger credit standards, it will make for healthier markets and more sustained growth. Governments and central banks are working together to minimize the fallout and help bring about a smoother adjustment in credit markets.

Restoring confidence to financial markets is key. Like central banks around the world, MAS has been closely monitoring the situation and stands ready to inject additional liquidity if necessary. To-date, our markets have been functioning in an orderly fashion.

MAS is also closely monitoring our financial institutions’ exposure to sub-prime and other structured credit markets, at both the domestic and global levels. Our exposure remains small and contained at this stage. At the systemic level, the potential impact on Singapore’s banking system is being monitored in consultation with the industry and subject to routine stress-testing exercises. MAS is also working with SGX to monitor its members, and to ensure that its clearing funds have sufficient resources to meet outstanding obligations.