piti disyatat : targeting inflation ( more ) flexibly remarks by mr piti disyatat, deputy governor of the bank of thailand, at the annual conference of the financial street forum 2024, beijing, 18 october 2024. * * * distinguished leaders, ladies and gentlemen, it is an absolute pleasure to participate here today at the financial street forum. i would like to thank the organizers, in particular the people's bank of china for inviting me. the last time i was in beijing was in 1995 where i spent most of my time exploring this historic city on bicycle. the transformation to this modern metropolis has been remarkable and is a testament to the visionary and adaptable leadership that has guided china's unparalleled economic development. over the last 30 years, monetary policy has also transformed with inflation targeting becoming the most widely - used framework in the world. by most measures, inflation targeting has been a resounding success. countries that have adopted inflation targeting have, on the whole, seen marked reductions in the level and volatility of inflation along with smaller output fluctuations. it has withstood big upheavals, including the gfc and the covid pandemic. and some 35 years on, inflation targeting has passed the " no - regret " test in that no country that has adopted it has abandoned it. even so, maintaining success going forward requires that the framework adjusts in a way that recognize key limitations and challenges that are likely to emerge. in my remarks today, i would like to highlight some of these limitations and challenges that inflation targeting will have to tackle. the context let me start with some context. over the last 25 years or so, central banks have generally successfully anchored inflation to a low and stable regime. inflation targeting has played a key part in that success. in such a low inflation regime, two key features stand out : 1. when inflation is low, say 3 % and under on average, most of the variations in inflation will reflect changes in prices of goods or services in particular sectors. these sector - specific price changes tend to be uncorrelated with each other, reflecting sector - specific shocks. for example, high vegetable prices due to a drought or cheaper tvs from more efficient global production. as a result, movements in inflation tends to reflect relative price changes, rather than broadbased changes in the underlying price level. in other words, the various goods and services that make up the cpi basket

laggednature of monetary policy transmission, and the need for targeting stability to effectively anchor long - term inflation expectations. to this end, coordinating with the fiscal authorities in setting a target aims to ensure that monetary policy is aligned with the country ’ s overall economic policy direction. by the end of this year, the bank of thailand ’ s monetary policy committee, jointly with the minister of finance, will be required to set an annual target for monetary policy for 2009. more importantly, this understanding must also be shared with the public at large – that the only long - term role for monetary policy is in creating an environment of price stability which would help support sustainable economic growth. ladies and gentlemen, in raising the economy ’ s potential output, it requires that we pay attention to our capacity. i would like to raise two important areas of commitments that all economic participants together can help the economy build strong capacity. these are greater energy efficiency and advancement in education. on the commitment to improve energy efficiency, we must reduce our dependence on imported oil from the present net oil imports ratio to gdp of about 8 percent, which is the highest in asia. this can be done through investment to modernize new energy - efficient machinery and technology used for production. importantly, price and tax mechanisms should foster energy saving. as for the commitment to help upgrade education to increase labour productivity, reform in the education system should focus on raising the standard and quality of education for future generation of labor force. skill specialization must be shaped to complement for thailand ’ s competitiveness in the world market. indeed, better education would also improve financial literacy and access, which will, in turn, allow more efficient allocation of consumption and investment. in sum, no matter how fast the economy manages to grow, at the end it is merely numbers. the development makes a real difference only when we are committed to building strong fundamentals to support long - term growth to ensure that the people are really better off on a sustained basis. moreover, as we move toward an ageing society, fiscal policy is able to ensure a sound social safety net system to accommodate for an increase of elder population in the future. meanwhile, the monetary policy takes care of price and financial stability. ladies and gentlemen, after a rather heavy presentation, i would like to end my talk on a lighter note. i trust that during your years in thailand, you may have come across some fortuneteller stalls packed with worried - looking customers. in finding out what lies ahead, these customers