Governor’s Speech – Thailand Focus “Normalizing Policy to Ensure a Smooth Take-off” [clip] Dr. Sethaput Suthiwartnarueput, Governor of the Bank of Thailand Grand Hyatt Erawan Bangkok, 24 August 2022  Focus on 3 questions: (1) What do we need for a smooth take-off? (2) How do we get there? (3) What is our rationale for monetary policy normalization? What should we really be worried about? Part 1: What do we need for a smooth take-off? Our policy objective has been and continues to be trying to ensure a smooth take-off. For Thailand, this objective is different from that in industrial economies because the stages of recovery are different. Therefore, the policy response is also different. What is needed to achieve a smooth take-off? We need to keep inflation under control and ensure that the financial system continues to function well. 1. Need to keep inflation under control. a. Inflation harms purchasing power of households and hurts businesses, which in turn can put a drag on consumption and overall economic activities. b. High and persistent inflation may become entrenched if households and businesses expect inflation to remain high for long periods. A shift towards a higher and less well-anchored inflation regime must be prevented because in such a regime, high inflation expectations generate broader cost passthrough that act to keep inflation persistently high in a self-fulfilling manner. In such situations, inflation can also become more sensitive to relative price shocks including large depreciation in exchange rate and wage adjustment. 2.

Those huge pools of savings currently available can be intermediated locally instead of going through financial systems located in advanced economies. Regional financial markets would have to complemented and underpinned by monetary arrangements. Asian countries are working on and implementing progressively such schemes through the Chiang Mai initiative. We, in Europe, monitor closely those evolutions as well as the progressive emergence of the RMB as an international currency. As you know, we have a long and successful history of economic, financial and monetary integration. We have learned a lot and, still recently, gone through many crises and difficulties. Nevertheless the Euro, which did not exist fifteen years ago, stands today as one of two major world currencies. We certainly don’t pretend our own experience should constitute a model or an example to be followed. I have, however, one certainty: a strong and permanently renewed spirit of cooperation has allowed us to overcome many obstacles and to reap many benefits in terms of prosperity and stability. In a world full of opportunities, but also increasingly complex, this may be an inspiration for all of us. I thank you for your attention. References Caballero, Ricardo J., 2006. “The Macroeconomics of Asset Shortages.” 4th ECB Central Banking Conference, Frankfurt, November. Caballero, Ricardo J., Emmanuel Farhi and Pierre-Olivier Gourinchas, 2008a. “Financial Crash, Commodity Prices, and Global Imbalances.” Brookings Papers on Economic Activity, Fall, pp 1–55. Caballero, Ricardo J., Emmanuel Farhi and Pierre-Olivier Gourinchas, 2008b. “An Equilibrium Model of “Global Imbalances and Low Interest Rates.” American Economic Review, 98:1, p358–393.