In 1984, 200 additional barrels were added to the proven reserves in the Middle East, which now stand at 685 billion barrels out of a total of roughly one trillion barrels worldwide.3 Despite great difficulties of forecasting oil prices, monetary authorities cannot shy away from considering different hypotheses. In essence, central bankers have to think about risk and probability weighted scenarios. As I have tried to demonstrate, there is considerable evidence suggesting that oil prices may not rapidly revert to previous average price ranges. The future could, of course, turn out differently. Supply elasticity tends to be underestimated, sometimes dramatically so. Indeed, in the late 1970s, oil prices were projected to rise substantially. As we now know, market forces prevailed. Supply was increased and prices eventually fell. Nonetheless, from today’s vantage point, the hypothesis of a level shift in the equilibrium price range of oil strikes me as plausible. Moreover, given the importance of oil prices to the overall dynamic of the global economy, we need to consider the likely impact of higher oil prices on aggregate output and inflation and what it means for monetary policy. 4. Impact on output and inflation  Oil prices affect the economy through different transmission channels. In the short term, an oil price shock adversely affects aggregate demand. A rise in the price of oil resembles an excise tax and leads to a loss of purchasing power. In the medium term, higher oil prices lead to higher production cost and a reduction in the rate of return on capital.

Against this backdrop, the Bank of Thailand has the duty not only to preserve and maintain economic and financial stability, but also to develop our financial system so that it can effectively unlock Thailand’s economic potential, uplift productivity, and bring about more inclusive growth for the future. Ladies and gentlemen, For the Bank of Thailand, maintaining economic and financial stability is a prerequisite for sustainable growth. Thus far, the Thai macroeconomic outlook remains favorable, with the economy expected to grow 4.4 percent this year, the highest since 2012. Additionally, 1/6  the Thai economy has adequate buffers to withstand any immediate challenges, with ample international reserves, covering 3.5 times our short-term external debts; low dependency on external borrowing; and current account surplus of around 8 – 9 percent of GDP1. Moreover, our banking sector is robust, with high capital adequacy ratio and stable domestic funding. In the first quarter of 2018, the capital adequacy ratio of the banking system averaged 18 percent, among the highest in the region. To further safeguard financial stability, additional micro and macro-prudential measures were introduced, such as the regulations on domestic systemically important banks (D-SIBs), along with more stringent regulations on credit cards and personal loans to tackle household debt challenges. Moreover, the Bank of Thailand recently revised regulations to enhance financial institutions’ corporate governance, with emphasis starting at the Board of Director’s level. Meanwhile, in collaboration with the Thai Bankers’ Association, we established a “debt clinic” to offer multi-creditor debt restructuring program for troubled individuals.