policy maintaining economic balance is key to the making of monetary policy, as it is one of the most important pre - requisites of macroeconomic stability. in practice, this means that as the economic activity returns to normalcy, monetary policy stance must similarly be normalized. failure to do so will add undue pressure on inflation, ultimately posing risks to macroeconomic stability. thus this year, the monetary policy committee ( mpc ) will need to continue normalizing monetary policy. the amount and pacing of policy interest rate adjustments this year will be consistent with the outlook for growth and inflation as well as the surrounding risks. as always, the policy decisions will be grounded on informed and prudent deliberation by the mpc, with an aim of keeping core inflation within the target band as mandated by law. because many shocks, both of temporary and structural nature, cannot be foreseen, it is difficult to say beforehand what level of policy interest rate should be appropriate for this year. however, sustained negative real interest rates are usually not consistent with fostering economic balance. bis central bankers ’ speeches timely adjustments in policy interest rate will help keep inflation pressure in check, which in turn lead to low and sustainable borrowing costs in the long run. the bank of thailand has taken steps to enhance the transparency of monetary policy making, by announcing the mpc voting result together with the statement for the first time early this month. the first minutes of the meeting has also been released this morning. it is hoped that these information will help businesses and households understand the rationales behind the mpc policy decisions, and enable them to make better and more informed economic decisions. exchange rate policy the bank of thailand adheres to our policy framework, where exchange rate is not a policy instrument and hence is market - determined. however, recognizing the risks of high volatility in capital movements looking ahead, the bank of thailand has followed a three - part approach. the first is to develop a systematic capital flows master plan, with sequencing appropriate for the development of the thai economy and the evolving international financial market. part of this plan is to relax regulations that hinder thai residents from investing abroad, in order to foster more balanced capital flows. secondly, the bank of thailand will encourage the use of appropriate financial hedging instruments, in order to strengthen the risk management capability of the private sector, especially the small and medium - sized businesses. given the possibility of more volatility in the financial market looking ahead including the

july 2014. bis central bankers ’ speeches it is crucial to note again that this is about macroeconomic policy and not about microeconomic efficiency. it is definitely not about asking our economies to compromise productivity and competitiveness. it is about fostering a broader use in the present of what a productive economy can sustain. the problem is that there is no common european fiscal policy, which is also not foreseen in the treaty. the overall fiscal stance is not discussed and there is no substantive effort to coordinate independent national fiscal policies. many economists have pointed out that this constitutes a significant shortcoming of our monetary union design. economic governance of the monetary union depends only on monetary policy without any concept of a macroeconomic policy mix. this shortcoming provides the rationale for the proposal in the recent five presidents ’ report, that points for the creation of “ an euro area - wide fiscal stabilisation function ” in the longer term. on the way to the “ longer term ”, one could envisage some steps to strengthen the european dimension of fiscal policy in the eurogroup. another initiative could be to expand the financial capacity of the juncker plan in order to really help to jump start investment at the level of the european union. this would be consistent with the existent overall fiscal space. a last important remark is that a more flexible overall fiscal policy does not require changing the existing framework of the stability and growth pact that binds euro area member states. as recently emphasised in a document by the european commission, 7 the pact already envisages a certain degree of flexibility in the way its rules should be applied. one example is the notion of “ structural budget balance ” which member states are obliged to meet. the structural budget balance is, in effect, the budget balance corrected for the effects of the business cycle. the objective of the correction is to allow fiscal policy to play its role in mitigating possible economic shocks. the scope of flexibility within the stability and growth pact should thus be exploited in full. let me conclude. the euro area has been experiencing a protracted period of low inflation and weak economic activity, with two recessions and a very slow recovery since the latter recession. monetary policy has been and will continue to be accommodative, but monetary policy alone cannot respond to all the existing challenges. recent developments only add to the urgency of addressing economic, social and demographic problems of the euro area. no complacency with mass unemployment should be tolerated. outcome legitimacy is,