the recent surge in speculative capital inflows caused a rapid one - way appreciation of the baht relative to regional currencies. the appreciation momentum hardly reflected our economic fundamentals. left unchecked, it could have presented a clear threat to growth and stability – beginning with export, a current engine of growth, trickling down to the real sector, and eventually harming financial stability. in dealing with currency appreciation, the prevailing wisdom of " letting the market work " has been given a chance. yet the baht kept rising against almost all major and regional currencies at an alarming speed. letting such rapid appreciation work itself out could have entailed significant risks to our agriculture sector, which employs nearly 40 % of the labor force, and small and medium - sized firms in the labor - intensive manufacturing sector. we recognize that the real sector needs to adjust. but the overall economy needed some breathing room to afford a smooth transition. after a number of unsuccessful capital account measures, we resorted to imposing a reserve requirement on capital inflows in december to break the rapid one - way momentum and preserve overall stability. to this end, the measure has succeeded in its task. to be sure, no measure is cost - free. the reserve requirement has imparted a wide - ranging effect on the market and the economy. in response to this, once the appreciation momentum was broken, we have been carefully modifying the coverage of the measure to allow greater flexibility for business operations without compromising the needs to contain excessive volatility. we did this by providing the option to hedge fully for loans and inter - company loans. at the same time, significant relaxations on capital outflow were undertaken earlier this year to bring about a better balance between inflows and outflows. let me be clear that the reserve requirement was designed to preserve market stability and to afford the real sector, which includes many sme operations, time to adjust to a more volatile market condition. to be clear, the reserve requirement was not designed to maintain a certain exchange - rate level. while the measure was necessary, we recognize its negative long - term effects and the adverse consequences on investor confidence and financial market development. as such, let me emphasize again that the reserve requirement is not a permanent measure ; it is temporary. its need is subject to constant review by the bank of thailand as the situation develops. a database of capital flows is also being upgraded. when we are satisfied that the situation has normal

, in significant part, to china's slowdown. total spending from tourism has also come in a bit softer due to fewer chinese tourists than expected. the drop - off in number has been compensated by non - chinese tourists, but chinese tourists tend to spend a lot more, so we see some softness in total spending. given the softness we have seen, our latest gdp forecast of 3. 6 % could be revised slightly downward. on the inflation front, the disinflation process has been faster than expected. the recent outturns in headline cpi have come in lower than our forecasts. however, this is a result of temporary factors - base effects and some government subsidies on electricity 1 / 4 bis - central bankers'speeches prices. we expect inflation to gradually pick up and reside within our target range. though there is some degree of softness in the near - term, we do not see any kind of deflation risk in thailand. the softness in inflation is mostly supply - driven. we do not see broad - based weakness on the demand side or weak consumption. going forward, there are still some upside risks to inflation from effects of el nino, which could have an upward impact on prices – particularly the food component that takes up a sizable share of the cpi basket. in addition, there could be upside risks from new policy measures by the incoming government, whenever and whoever that may be. the main takeaway is that the economic picture remains intact, though there is some softness on both growth and inflation fronts. growth and inflation figures for the year will come in a bit softer than our latest forecasts of 3. 6 % and 2. 5 %, respectively. revised forecasts should come out in september along with our next monetary policy report. part 2 : our monetary policy response in august of last year, we did our first policy rate hike, raising rates from a very low point of 0. 5 %. given the economic context at the time, our policy objective was to ensure a smooth takeoff. we were trying to ensure continued economic recovery while keeping inflation expectations anchored. hence, our policy response was to undertake a'gradual and measured'interest rate normalization and we increased the policy rate by 25 bps each meeting1. no heroic 50 or 75 bps hike. the reason was that the situation in thailand was different from other countries on both the growth and inflation fronts. as i mentioned earlier, our recovery was lagging other countries. inflation was largely driven by supply side