Second, through the most recent economic downturn, our policy rate has been lowered to 1.5 percent, a quarter percentage point above the historic low level of 1.25 percent implemented in 2009 immediately after the peak of the Global Financial Crisis. This was done with the aim to stimulate economic recovery. We now have limited “monetary policy space” to act should unexpected adverse economic conditions emerge. In very much  4/5  the same way that our foreign reserve build-up in times of capital inflow allows us room to conduct a diverging monetary policy and smooth out sudden capital outflows as we have seen these past months, building up some policy space for the future should be a prudent consideration. Ladies and gentlemen, With the ample external buffers we have built up, Thailand so far has the autonomy to deliberate our own monetary policy. I have outlined for you the main factors that the MPC considers: inflation, growth, and financial stability. We expect this year’s headline inflation to be in the target range, albeit around the lower end. In the longer run, however, structural changes and their effects on inflation dynamics will need to be taken into consideration when deciding an appropriate monetary policy framework. Concerns over the economic recovery have lessened over the last few quarters as the economy has made a clearer recovery with a more balanced growth. Nonetheless, certain risks to the growth outlook remains, and monetary policy still plays a role in supporting a more robust growth in domestic demand.

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.