Part of this plan is to relax regulations that hinder Thai residents from investing abroad, in order to foster more balanced capital flows. Secondly, the Bank of Thailand will encourage the use of appropriate financial hedging instruments, in order to strengthen the risk management capability of the private sector, especially the small and medium-sized businesses. Given the possibility of more volatility in the financial market looking ahead including the exchange rate, those businesses with sufficient hedging capacity will be able to absorb shocks better. In preparation for any extreme event with respect to capital flow’s volatility that may pose risks to the economic stability as a whole, the Bank of Thailand has prepared various options of regulating capital flows, with varying degrees of control. This constitutes the third plan. These three-pronged plans should ensure that the Thai economy has enough resilience and safeguard to meet challenges of capital flows. Financial institutions policy Effective implementation of monetary policy requires a strong system of financial intermediaries. An important characteristic of strong financial institutions is the ability to recognize and adapt swiftly to changes in the financial environment, domestic and abroad. For example, the ongoing process of economic and financial globalization will bring about ever closer interconnectedness and more volatility that will continue to challenge businesses and financial institutions. Meanwhile, the advent of modern financial tools, while enhancing the risk management capability for businesses, can also bring about closer and more complex integration between the capital market, the money market as well as the insurance industry.

As always, the policy decisions will be grounded on informed and prudent deliberation by the MPC, with an aim of keeping core inflation within the target band as mandated by law. Because many shocks, both of temporary and structural nature, cannot be foreseen, it is difficult to say beforehand what level of policy interest rate should be appropriate for this year. However, sustained negative real interest rates are usually not consistent with fostering economic balance. BIS central bankers’ speeches  1  Timely adjustments in policy interest rate will help keep inflation pressure in check, which in turn lead to low and sustainable borrowing costs in the long run. The Bank of Thailand has taken steps to enhance the transparency of Monetary policy making, by announcing the MPC voting result together with the statement for the first time early this month. The first minutes of the meeting has also been released this morning. It is hoped that these information will help businesses and households understand the rationales behind the MPC policy decisions, and enable them to make better and more informed economic decisions. Exchange rate policy The Bank of Thailand adheres to our policy framework, where exchange rate is not a policy instrument and hence is market-determined. However, recognizing the risks of high volatility in capital movements looking ahead, the Bank of Thailand has followed a three-part approach. The first is to develop a systematic capital flows master plan, with sequencing appropriate for the development of the Thai economy and the evolving international financial market.