Last year, the joint meeting between the Monetary Policy Committee and the Financial Institutions Policy Committee was first held with the purpose of sharing ideas from different perspectives. It set a stage for both committees to regularly monitor and exchange views on any systemic risk that might occur from the interconnectedness of economic and financial sectors and to form policy response, should further measures be necessary. For this year, the Bank of Thailand will continue to make sure that overall economic conditions stay safe and sound. Yet, balancing among different policy objectives to reach the ultimate goal of macroeconomic stability is even more challenging this year, given the possible risk on financial stability while the global environment is still surrounded with uncertainties. In closing, I would like to outline the key challenges faced by the Bank of Thailand this year: First, on monetary policy. Since the main goal of conducting monetary policy is to ensure sustainable economic growth, the MPC’s decision-making has always based on the risk to economic growth, inflation, as well as financial stability. This year, the challenge would be striking the right balance between economic growth and financial stability as inflationary pressure is well contained in the short run. Given buoyant domestic spending, keeping the policy interest rate too low for too long could give incentive to private sectors to borrow more. Furthermore, low interest rate will encourage depositors to switch to invest in riskier asset which could lead to the problem of asset price bubble in the future.

Given scarce labor and increasing wages, productions in Thailand need to shift from labor intensive to a more capital intensive industries and thus more import of capital goods and machinery are made cheaper during this investment up-cycle. Third, on capital flows management. In October 2012, the Bank of Thailand launched the Capital Account Liberalisation Master Plan. This Master Plan aims to facilitate Thai companies to diversify their investments abroad, especially in neighboring countries. This would encourage private companies to operate their businesses more efficiently by expanding their markets and production bases, which in turn will help strengthen their competitiveness. Facilitating outflows also helps capital flows to be more balanced. The Bank of Thailand, for instance, has removed the limit for Thai individuals’ outward direct investment, raised the limit per investor, and eased regulations for transfers of foreign currencies to facilitate investment in foreign securities. Recent surge of capital inflows to the region is likely to continue as long as advanced countries continue their extra-loose monetary policies and as long as the prospect of this region remains much more positive than advanced economies. There is no one-size-fits-all measure to deal with impact of short term capital inflows on the economy. The Bank of Thailand thus utilizes policy combinations, namely: allowing exchange rate adjustment as a first buffer; liberalising outward investments by residents; exercising exchange rate intervention to deal with excessive movements; and should circumstances deem necessary, the Bank of Thailand is prepared to consider appropriate measures in order to prevent serious impact on the economy.