So far, we have observed the cost-push pressure in the recent acceleration of domestic headline inflation, which rose from 2.3 percent at end-2007 to 5.3 percent at end-March, averaging 5.0 percent during the first quarter of this year. During this same period, core inflation averaged 1.5 percent. The central bank is keeping close monitoring of the inflation trend. The aim is to prevent higher inflation from dampening the anticipated recovery of consumption as purchasing power declines. And, rising costs would also reduce business profit margins and delay private investment. Nevertheless, though this downside risk is substantial, higher commodity prices will accelerate farm income, which tends to augment consumer purchasing power and income of agricultural exporters. As for the volatility emanating from international financial markets, my view is that the global financial environment may become more volatile for the rest of this year. However, now that the US dollar has lost sufficient ground, no one knows for sure which way a currency will move. But, with increasing likelihood, we should expect to see more 2-way movements in regional currencies. On the impact of the sub-prime woes on the Thai financial system stability, I can assure you that the direct impact of the sub-prime crisis on the Thai economy is minimal. As you may already know, only four Thai banks have CDO investment exposures, accounting for merely 0.3 percent of the banking system’s total assets. Of the four banks, the one that was more affected than the rest has already recapitalized.

This is so that risks from potential concentration of market power and financial instability are minimised. The final pillar aims to fill the gaps in institutional, including legal and information, infrastructure that are necessary for an efficient and modern financial system. We will be looking at the legal framework and other measures that would support a more effective functioning and supervision of financial institutions. These include sound credit culture (e.g., bankruptcy and foreclosure laws) and implementation of international best practices, such as new international accounting standards. On the information side, efforts will focus on the information infrastructure that would assist financial institutions in pricing and managing risks better. Areas for improvements are, for example, the operation of the Credit Bureau, rating agency, and more complete data on key economic sectors such as the real estate and housing market, etc. BIS Review 54/2008  5  On the whole, while the policy recommendations will largely cover BOT-supervised financial institutions, those related to other types of financial institutions and broader financial markets can also be addressed if they are deemed to be systemically important. Ladies and Gentlemen, In closing, allow me to emphasize once again that Thailand’s record of economic resiliency to adverse shocks and uncertainties in the past should clearly attest to the strength of our underlying fundamentals. The US and Thailand are long-time partners, and I need not mention how crucial it is to both our economies that we strengthen our trade and investment partnership in the years ahead.