Considering the issues described above, the Board believes that the balance of risks for inflation and growth is unbiased. However, on this occasion, the earthquake and tsunami introduce unusual uncertainty, particularly regarding economic activity data for March and April. Thus, the Board considers that the balance of risks for growth is biased downwards in the very short term. Accordingly, the Board will continue to use its policies with flexibility so that projected inflation stands at 3% over the policy horizon. Conclusions I would like to wrap up this presentation with some brief reflections. Fifty years ago, in May 1960, our country was also hurt by a big catastrophe. The earthquake in Valdivia caused the destruction of a large area in central-southern Chile, comparable only to the recent disaster. Human and material losses were aggravated by a severe macroeconomic maladjustment following the disaster. Weak fiscal accounts and monetary management led to neglect control of inflation, which soared in the following years. Our current situation is certainly different. Fiscal accounts are in order, and our monetary policy scheme, as I have already mentioned, has the virtue of allowing us to accommodate shocks without compromising the inflation objective. Although so far we have no statistics and preliminary data will be known in the coming days, it is possible that the immediate reaction to this tragedy will include a temporary increase in inflation and a sharp deceleration of economic activity, both as consequences of the major disruptions in productive processes and commercialization channels.

On the macroeconomic front, inflation expectations are firmly anchored, affording monetary policy the space to remain sufficiently accommodative to support growth momentum and mitigate global economic risks. Fiscal stimulus measures, including the first-car tax rebate scheme and the personal income tax cut, should also further help sustain domestic demand. The latest Monetary Policy Report released in January projected growth this year to be 4.9 percent, which will likely be revised up after the strong outturn of last year growth rate as announced by the NESDB. BIS central bankers’ speeches  1  Challenges and role of monetary policy Despite this somewhat benign outlook, there remain three important challenges facing the Thai economy, from both domestic and external sources. The first key challenge is on the domestic side. Private sector credits, particularly those in the household sector, have been growing at a high pace, spurred by domestic demand momentum, fiscal stimulus as well as easy financial conditions. International evidence suggests that a prolonged period of rapid credit growth could lead to a build-up of financial imbalances, strain households’ debt servicing ability and loan quality, as well as sow a seed for asset price bubbles. While the more adverse scenarios currently remain a remote possibility in Thailand, the MPC is not complacent and has been monitoring risks to financial stability closely. Monetary policy can play an important role in preempting an emergence of such risks, and the MPC will continue to evaluate if and when a specific policy response is warranted.