governor ’ s speech - the budapest eurasia forum 2022 “ challenges facing small, open economies in the changing global landscape ” dr. sethaput suthiwartnarueput, governor, bank of thailand magyar nemzeti bank, budapest, 19 september 2022 excellencies, distinguished participants, it is a great pleasure and privilege to be here at the budapest eurasia forum. while the global landscape is constantly changing, the speed and scale of the changes happening now are particularly large and rapid. many of these changes pose particular challenges for small, open economies. i would like therefore to focus my remarks on three key challenges facing small, open economies in this changing global landscape. part 1 : the first challenge is rapid and synchronized monetary policy tightening • we are going through one of the most rapid and concerted monetary policy tightening cycles in recent memory. about this time last year, the fed funds rate expected for the end of this year was under 0. 5 % ; markets now expect it to be around 4 %. almost all central banks have raised rates as part of what one might call the “ great policy normalization ”. this reflects the rapid return of inflation. two years ago, of the 60 countries tracked in the bis database, 42 had inflation below 2 %. today, that number is zero. • adding to the challenge, the prevailing initial conditions under which the major economies are embarking on this “ great policy normalization ” are far from ideal. the prolonged period of unusually low inflation during past decades allowed central banks to conduct extremely accommodative monetary policies for a very long time. this has contributed to a significant buildup of global financial vulnerabilities, including stretched valuations of risk assets, high house prices, and record high private and public debt. 1 • for small open economies, especially those from emerging markets, the challenge is to maintain stability in the face of more volatile capital flows, large swings in exchange rates, and tighter global financial conditions. the steep appreciation of the us dollar poses significant risks, particularly for those countries with high external vulnerability. many have had to follow the aggressive tightening of policy by the fed. • that said, the overall repercussions of advanced economy policy tightening on global financial markets have - - thus far - - been remarkably orderly. there have been no major dislocations in emerging market capital flows and there has been clear differentiation based on country - specific fundamentals. asian economies overall have exhibited resili

get clear and loud the signal about the orientation of the monetary policy stance and this fosters the predictability and credibility of the governing council ’ s monetary policy decisions. the fact that these decisions are firmly based on the objective of price stability and the concomitant fact that the steering of liquidity is in turn dependent on these decisions, but in no way influences them ensures that price stability is maintained over the medium term. this also ensures that the liquidity provision aimed at promoting the smooth functioning and resilience of money markets is also fully in line with the primary objective of price stability. particularly after the onset of financial tensions in august 2007, the principle, that the steering of liquidity is subservient to the monetary policy stance and does not affect it, appeared of the essence. in this period of acute turbulences, the ecb has succeeded in containing deviations of very short - term interest rates from the official interest rate set by the governing council. as a result, the ecb has ensured a continued effective implementation of monetary policy in line with the stance, thereby also contributing to safeguarding overall financial stability. since the last hearing in december, tensions have continued. during this period, the eurosystem remained, as usual, in close contact with other major central banks. in this context, on 11 march the governing council of the ecb decided, in conjunction with the federal reserve to offer us dollar funding to eurosystem counterparties as it did in december 2007 and in january 2008. through the operations currently being undertaken, liquidity for an overall amount of up to usd 30 billion is provided. the swiss national bank is following an analogous course of action. overall, given its flexible design, the eurosystem ’ s operational framework with its broad range of instruments has thus far proved to be resilient and effective. even in the course of the ongoing financial turmoil, there has been no need to adjust or extend the existing framework, e. g. by introducing innovative instruments or a broader range of collateral. recent developments regarding financial stability and supervision i would now like to share with you the ecb ’ s assessment of the current financial stability situation. i will also touch briefly upon the possible policy measures which are being prepared at the european and international level in response to the financial turmoil. with the global financial system undergoing a process of de - leveraging, the euro area financial stability outlook continues to be clouded by considerable uncertainty. since my last hearing before your committee,