Fourthly, the information technology infrastructure and capacity of financial institutions would be strengthened, thus allowing more efficient utilization of technology to serve increasing customer needs, while supervisory standards would focus on ensuring security of services. Finally, there is the need to enhance the capacity of human resource in the banking sector. Ladies and gentlemen, In any financial system development and reform, regulation must be able to keep up. Let’s now turn to the third and final part of my talk: key measures in risk-based supervision to ensure stability. In this regard, the Bank of Thailand continues to work closely with the Basel Committee, through our participation as member of the Standard Implementation Group, or the SIG, and Basel Consultative Group, or the BCG, as well as work with other regulators in the EMEAP  BIS Review 20/2010  3  region to reform the global financial system. Through these forums, we participate in key reform areas such as refining of risk measurement, formulating measures in handling systemically important institutions, calibrating regulations, such as Basel II capital requirements, stress-testing, and accounting rules to alleviate such problems. Our role in these forums helps us to steer much reform in ways that are consistent with our own national context, and would be key to ensure proper matching of risk profile in our system with emerging regulations. At home, empowered with the recent improvement in the legal framework, namely the Financial Institutions Business Act, we will remain committed to performing risk-based supervision and ensuring proper governance within individual financial institutions.

Various measures of underlying inflation are often used to justify the system used. What these measures have in common is that they use the CPI but remove various price components that have historically shown substantial fluctuations. One such measure, UND1X, has been given a particular status. In this measure the effects of changes in indirect taxes and subsidies as well as mortgage interest expenditure have been excluded. In the long term, the difference between the increase in the CPI and the increase in UND1X is slight. However, in the short term, inflation develops slightly more evenly according to UND1X than according to CPI as a whole. The bases for the monetary policy decisions are therefore often easier to explain when the inflation forecasts follow UND1X than when they follow CPI. BIS Review 29/2006  1  The fact that the objective of monetary policy has been given as low, stable inflation is because in the long term, this is the only factor of the economy that monetary policy can influence. Long-term developments in growth and employment are not affected by changes in the interest rate. They are determined by factors such as productivity and the supply of labour and capital, as well as the way the labour market – and the economy as a whole – functions. Monetary policy’s most important contribution is to act to ensure that the macroeconomic environment remains as stable and predictable as possible. At the same time, monetary policy has some effect on short-term fluctuations in production and employment.