With regards to the extent to which financial stability conditions should be incorporated into monetary policy decision, one prominent view is that financial stability should be addressed mainly by macroprudential tools, and that, if effectively deployed, macroprudential tools can free up monetary policy to focus on price and output stabilization objectives. While this might hold true in some advanced economies, operationalizing macroprudential tools in practice—especially in emerging markets—has proved challenging. Limited experiences and complex interactions among various policy tools make calibrating macroprudential measures extremely difficult, not to mention the risk that these tools might inadvertently push some activities outside of the regulatory umbrella into shadow banking. My view, therefore, is that macroprudential tools are complements, rather than substitutes, for the broader monetary policy stance. Ladies and gentlemen, The three factors I have mentioned—inflationary pressure, growth, and financial stability—are factors that the MPC consistently looks at when deliberating monetary policy’s transition under the flexible inflation targeting framework. But before I make my concluding remarks, I would like to mention that when we are confident that economic growth is close to its potential and inflation will remain within our target range, the MPC can take a longer view. And this is when policy space should be taken into consideration. Two considerations are at play. First, history has taught us that a period of prolonged economic expansion comes with asset price bubbles and market correction and recession. A gradual, anticipated, movement in the policy rate reduces the risk and the size of such outcome.

The prolonged period of global low interest rate environment leads to another potential concern: search-for-yield that leads to underpricing of risks. It should be noted that search-for-yield is not uncommon and is all well and good if investors are wellinformed and manage their risks accordingly. However, we cannot deny that some investors are underpricing the associated risks. Debt accumulation among households;  3/5  large expansion of foreign investment funds with high concentration in some emerging economies; saving cooperatives’ growing asset base; maturity mismatch of corporate borrowers; and rapid growth of unrated bonds are some examples of the issues the Bank of Thailand has been monitoring over the years. More recently, we also notice an upward trend in mortgage loans to homebuyers who search for rental yield, driven partly by high LTV ratio for mortgage loans offered by fierce competition in the financial sector. Furthermore, mortgage NPLs, especially among second and third home buyers, have continued to rise. On the regulatory side, the Bank of Thailand continues to monitor warning signs of financial stability risks and address them accordingly. For example, last year, we tightened credit card regulations as well as uncollateralized personal loan limits to mitigate household debt problems. It is also our view that collaborations between various regulatory bodies and market participants are increasingly important for effective risk monitoring and assessment, together with appropriate measures to manage risks that might arise in the future.