The commercial banks should also respond to changing macroeconomic indicators consistent with low interest rates, while borrowers need to improve their credit culture. As for the Bank of Zambia, we continue monitoring financial conditions and take appropriate actions to contribute to lowering of interest rates. (iii)  A relatively stable and competitive exchange rate has a positive impact not only on inflation, but also on the performance of the external sector. In this regard, policies for stabilising the exchange rate must aim at increasing the export earning capacity of the country through stimulation and maintenance of strong export sector by, among other things: •  Developing a diversified and competitive export base; and  •  Ensuring food self-sufficiency to reduce food imports. In addition, continued implementation of appropriate monetary and fiscal policies, particularly the reduction in the fiscal deficits, is critical to maintaining stability in the exchange rate. BIS Review 5/2005  3  (iv)  External debt should be contracted to finance the productive sector so as to lessen the burden of debt service. Otherwise, it will result, as we have seen in the last 40 years, in huge outflows at the expense of expenditures on social and economic infrastructure development, which are pre-requisites to sustainable poverty reduction efforts. (v)  The need to diversify the economy, including the external sector, cannot be overemphasised. Diversification is a sure way of preventing external shocks to the economy and will contribute to maintenance of macroeconomic stability.

Around the end of 2006, we saw rapid appreciation of the baht, declining consumer confidence, and weakened consumption and investment. In addition, the implementation of the reserve requirement, the amended Foreign Business Act, and the compulsory licensing of certain medicines proved to be unpleasant surprises to the investor community, local and international. Notwithstanding the less than favorable political and economic environment and despite both external and internal shocks, the Thai economy has shown remarkable resilience. Recent figures show GDP expanding by 4.3 percent in the first quarter of the year. Net exports and government expenditures expanded well. However, household consumption slowed while investment contracted. Much of the slowdown has been due to the rise in political uncertainty. Softened business sentiments led firms to delay their investment plans. Decreased consumer confidence led households to delay purchases of durables, such as automobiles and motorcycles. In light of the diminished pressure on prices, the Bank of Thailand responded by shifting to an accommodative monetary policy stance. Since the beginning of the year, the policy interest rate was lowered from 5 per cent to the present rate of 3.5 per cent. At this juncture, the Monetary Policy Committee deems the current level of policy interest rate to be supportive of economic expansion while maintaining stable inflation. At this point, allow me to elaborate on Thailand’s economic prospects going forward. Our outlook for the Thai economy remains positive. Present data and our forecasts point to a satisfactory growth outlook for this year and next year.