Yet, vigilance in this area is important to prevent buildup and materialization of systemic risk. Last year was no exception in terms of close monitoring of the soundness of the banking system, and changes in the prudential regulation, which were an appropriate balance between the need to support private sector financing, while maintaining the health of the banking system at the same time. What was the monetary policy stance like in 2014 given the already elaborated economic and financial conditions? In general, the accommodative stance was maintained. The main interest rate was maintained at the historically lowest level, the targeted measures to support net-exporting and electricity producing companies were extended until the end of 2015, and certain credit-supportive macro-prudential measures were undertaken. This relatively loose stance was maintained as a consequence of the “benign” external position, which did not jeopardize the foreign reserves, and enabled a rather balanced foreign exchange market during the year. Low inflation was also in favor of maintaining the accommodative stance. Yet, the room for monetary policy accommodation appears to be largely exhausted. The outlook for the 2015–2016, is more or less expected to resemble the state of the economy in the previous year. Growth of the economy is expected to accelerate to 4.1% and 4.5% in 2015 and 2016. The fundamental factors to underpin the growth dynamics remain the same. The boost to the export and investment is expected by the new and the existing foreign companies, as well as those envisaged to enter the market.

The decision entails  BIS Review 64/2007  3  a tough trade-off between lower interest rates that boost the economy today but invite inflation tomorrow. Tightening interest rates burden households today but pre-empt inflation tomorrow. In the most recent episode of high oil prices in 2004-2006, the Monetary Policy Committee’s decision to tighten interest rates to maintain price stability was crucial for sustaining economic stability and growth in the current period. Inflation has been well contained and its persistence pre-empted. Last year, consumer price inflation came down from a peak of 6 percent in the second quarter, to 3.3 percent in the last quarter. In the first quarter of this year, headline inflation registered 2.4 percent. Ladies and Gentlemen, My third and final point is that Thailand must enhance its ability to compete through productivity improvement to continue reaping the benefits of globalization. The challenges of globalization are constantly changing. To meet these challenges from without, it is critical that the Thai economy build strength from within: by continuously improving the flexibility and efficiency of its firms, the resiliency of its households, and the competitiveness of its business environment. In this respect, public policy must engage in financial and real sector reforms and policies that promote a stable macroeconomic environment and a competitive private sector. Looking ahead, our financial and legal infrastructures will continue to be strengthened particularly through the introduction of a number of legislations and amendments. The new Financial Institutions Act and the Deposit Insurance Act are in the pipeline.