norman t l chan : domestic and international dimensions of unconventional monetary policy opening remarks by mr norman t l chan, chief executive of the hong kong monetary authority, at the conference on “ domestic and international dimensions of unconventional monetary policy ”, organised by the hong kong monetary authority and the federal reserve bank of new york, new york city, 20 march 2014. * * * mr mcandrews, professor sims, professor woodford, ladies and gentlemen, 1. a very warm welcome to all of you for attending today ’ s conference jointly organised by the federal reserve bank of new york and the hong kong monetary authority. this joint conference is very timely, as it is neither too early nor too late to examine the effects of the unconventional monetary policy ( ump ) of the fed, including its spill - over effects on the emerging market economies ( emes ). as we all know, the fed has already started tapering and, if everything goes according to plan, would end the asset purchase programme by the end of this year. the fed has made it very clear in its external communications that tapering is not tightening and that there would likely to be a gap between the end of qe and the actual tightening of policy interest rates. however, the market considers that we are now in the phase of “ exit ” from the ump, which also marks the beginning of the normalisation of us interest rates. when chairman bernanke first talked about a possible timeline for tapering in may last year, there were strong market reactions globally and all emes experienced significant sell - off. the market then calmed down somewhat for several months before we saw another round of eme sell - off in january this year. the question that is most talked about now in the financial and central banking community is the pace of the fed ’ s exit and its impact on emes going forward. were these two rounds of eme sell - off merely isolated market over - actions or are they warning signals on the turbulence that awaits the emes when us interest rates normalise? 2. to assess what may lie ahead, it is useful to look back and try to understand what happened in the past five years during which the global monetary and financial environment was dominated by the ump of the us and other advanced economies. in 2009, the market expectation was basically that qe would last for a year or so, i. e. “ low for a short while ”. the expectation then changed to “ low for long

the introduction of the amended foreign business act turned out to be unpleasant surprises to investors and the global community. and on top of all these, political uncertainty remains a material factor in the private sector's decision to invest. the concern that some of you may have is : can thailand weather all these challenges well? are we turning our back on globalization? a confluence of events in the past few months does appear to present a cause for concern. but i believe that thailand will persevere, and that we should continue to take all advantages that globalization has to offer for years to come. our outlook for the thai economy in the medium term remains positive. our forecasts, once incorporating the risks i mentioned, show the thai economy growing by 4 - 5 percent in 2007 and by 4 - 5 percent in 2008. the growth is expected to come mainly from exports, given healthy global conditions, additional government spending, and lower oil prices. these represent a respectable growth outlook for thailand in light of the challenges and our focus on stability. but a positive outlook by no means allows for complacency. we must constantly work to identify and manage the challenges. this leads me to my second point. what are the key challenges to the thai economy in the near term? the first major challenge is that of financial globalization. on the financial system front, globalization brings complex financial instruments that require significant improvement in risk management, and the challenge of meeting international standards of basel ii and ias 39. these are the manifestation of the forces of globalization that the thai banking system is already facing, and will continue to face. the overall effect is that the financial system and the economy may be subject to heightened uncertainties. and unless we strengthen our ability to manage these risks and challenges, the vulnerability can exacerbate, with possible implications for our economic and financial stability. this, in my view, is a major challenge for all of us in the financial community. the second major challenge to the thai economy is how to cope successfully with volatile global financial markets and an appreciating baht. this challenge is the more pressing of the two. let me explain why. thailand, like many emerging market economies with a small and shallow financial market, is particularly vulnerable to fast - moving international capital. such rapid movements of capital flows, if vastly out of line with our ability to absorb it, can have negative impacts on the export or import sectors, depending on the direction of the exchange rate movement. in our case,