Prasarn Trairatvorakul: Bank of Thailand’s policy direction in 2011 Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Bank of Thailand, Bangkok, 26 January 2011. *  *  *  With retrospect, the year 2010 testified to the strength and resilience of the Thai economy. Economic activity was able to continue uninterrupted, despite various unfavourable shocks such as political unrest, volatile capital flows, flood, and delayed economic recovery in some advanced economies. Policy measures, both monetary and fiscal, had been supporting factors. The economy expanded by as much as 8 per cent in 2010 as a result. Given the strong growth momentum and solid economic fundamentals, the Thai economic growth is expected to expand at 3–5 per cent this year. This pace of growth is consistent with the long-term potential growth of the economy, and is an indication that the economic activity has returned to its normal, more balanced state. This is in contrast with the catching up episode last year, characterized by extraordinary growth rate. As the economy operates closer to its potential, the demand pressure on prices will begin to accumulate, and consequently inflation is projected to be higher than those registered in the last couple of years. The rising costs, stemming largely from commodity prices, can further add to upward pressure on prices. Upside risks to inflation should return to focus this year, while the downside risks to growth should continue to abate. Meanwhile, many risk factors of the previous year may continue to pose threat.

Of relevance is that excessive risk-taking behaviours featured prominently as a key factor contributing to the Crisis. In addition, what makes the Global Financial Crisis different is the extent of the economic and financial inter-linkages within and across borders, which explains the far-reaching impact of the crisis. While the greater interconnectedness of economies and financial systems has brought about opportunities, it has also resulted in greater risks. The Global Financial Crisis has resulted in the re-assessment of how policymakers view the achievement of macroeconomic and financial stability. There is a growing recognition that emerging risks to macroeconomic and financial stability have to be identified and managed in a more holistic and effective manner. As the economy and financial system grow in complexity, policymakers have to strengthen the understanding of the macroeconomic and financial inter-linkages in order to be able to effectively assess the implications of any potential risk on the economy. Before the Global Financial Crisis, the predominant view was that unfettered markets, selfcorrections and minimal interventions would deliver the best economic outcomes. However, recent experiences have shown that policy interventions to correct market misalignments after a crisis may prove too late as the aftermath could be extremely costly. This, therefore, call for policies to be pre-emptive rather than reactive. For policymakers, the aim is to preserve macroeconomic and financial stability, and build the country’s resilience to shocks. Macroeconomics stability is a very important prerequisite for businesses and individuals to undertake economic activities.