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

exchange rate, those businesses with sufficient hedging capacity will be able to absorb shocks better. in preparation for any extreme event with respect to capital flow ’ s volatility that may pose risks to the economic stability as a whole, the bank of thailand has prepared various options of regulating capital flows, with varying degrees of control. this constitutes the third plan. these three - pronged plans should ensure that the thai economy has enough resilience and safeguard to meet challenges of capital flows. financial institutions policy effective implementation of monetary policy requires a strong system of financial intermediaries. an important characteristic of strong financial institutions is the ability to recognize and adapt swiftly to changes in the financial environment, domestic and abroad. for example, the ongoing process of economic and financial globalization will bring about ever closer interconnectedness and more volatility that will continue to challenge businesses and financial institutions. meanwhile, the advent of modern financial tools, while enhancing the risk management capability for businesses, can also bring about closer and more complex integration between the capital market, the money market as well as the insurance industry. on the other hand, from the perspectives of consumers themselves, greater demand for funds and financial services is often constrained by limited financial access. the appropriate course of policy on financial institutions must take into consideration challenges posed by these trends of changes. in this context, the bank of thailand sees three policy priorities going forward : ( 1 ) to preserve the soundness of the financial institution system, ( 2 ) to enhance the efficiency of financial intermediation, and ( 3 ) to place emphasis on consumer protection. the soundness of financial institutions is the major foundation of macroeconomic stability. currently, financial institutions are in top conditions, with npl ratio last year as low as 3. 6 despite credit expansion of 11. 3 per cent. banks ’ capital is also much higher than recommended international standards. this strong soundness must be preserved. the bank bis central bankers ’ speeches of thailand will continue to apply micro - prudential approach to the regulation of financial institutions, to ensure that financial institutions put in place appropriate risk management framework, are prudent in extending credits, and maintain sufficient level of capital according to new international standards such as the basel iii guideline. the recent global economic crisis highlights the importance of extending the coverage of supervision to foster the soundness of system as a whole, in addition to individual institutions. “ systemic risk ”, in particular, can pose serious threat to macroeconomic stability at large.