To blend more ingredients into the world economic cocktail, again we face a substantial increase in commodity prices. As usual, it can be attributed to various factors. One is the fast growth of emerging economies and the subsequent increase in demand. Add to this, among others, climate elements that have hindered the production of foods, and geopolitical risks that have pushed up the oil price. These high prices, combined with the fact that emerging economies are near their potential growth level, some with clear signs of overheating, both actual and expected inflation have risen all over the world. Several emerging economies, Chile among them, have withdrawn monetary stimulus as a response to this cycle. In contrast, developed economies, with a timid recovery, have not only sustained their ongoing monetary packages but are expected to keep them in place for a while. This mixture of monetary policy imbalances, high commodity prices, and good growth prospects in emerging economies have created tensions in exchange rates and capital flows, two issues I will refer to now. The exchange rate and capital flows Before the financial crisis hit, some developed economies, particularly the United States, were accumulating big deficits in their current accounts. This excess spending was being financed by surpluses in emerging markets, primarily China with its high saving rates, and oil-exporting economies (figure 4). Global imbalances were an important factor in the crisis. This was not uncommon for emerging economies: low saving rates, large current-account deficits and borrowing used to finance unsustainable consumption or fiscal expansions.

Inflation averaged 2.6 percent over the past decade, or about half of the 5.1 percent average rate during the 1990s prior to the  BIS central bankers’ speeches  1  Asian Crisis1. Meanwhile, our unemployment rate has been low at around 1 percent. The banking sector, severely affected by the 1997 crisis, has been safe and sound, minimally affected by the global financial crisis ten years later as a result of strengthened risk management and governance. Despite ongoing net capital inflows into Thailand, there appears no sign of asset price bubble while the degrees of leverage in the corporate and household sector are still low. Overall, I believe that the Thai economic stability has strengthened continuously. This achievement has been attributable to sound fiscal and monetary policy, together with appropriate and market-friendly regulations, aimed at keeping the economy operating close to its potential. Suffice it to say that the Bank of Thailand has fulfilled our responsibility to help achieve the economic stability. Under the inflation-targeting framework, the policy interest rate is the main instrument used to influence saving and spending in the economy so that demand matches potential supply. This economic balance has, in turn, produced a low and stable inflation environment necessary for the sustainable growth. In addition to the interest rate tool, the central bank also has regulatory tools to prevent undesirable accumulation of financial imbalances. Indeed, the so-called “macro-prudential policy” has been used as a complementary policy tool to the interest rate policy long before the sub-prime crisis.