prasarn trairatvorakul : thailand ’ s financial challenges in global capital markets speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the thailand focus 2012 “ positioning thailand for the next growth phase ”, bangkok, 29 august 2012. * * * it ’ s an honor to speak before you today at the thailand focus conference. this morning you heard finance minister kittiratt na ranong speak on thailand ’ s competitiveness and fiscal policy. later on in the conference, other distinguished speakers will discuss thailand ’ s investment opportunities in greater detail. to complement the picture, i will speak on monetary policy to complete your views on the investment opportunities and prospects of the thai economy. as international investors, i believe you need to have a firm understanding of the country ’ s policy direction – something that is sorely needed in the current uncertain global economic environment. so today i will share with you my thinking on the monetary policy options going forward in light of my assessment of the global economy and the risks to the thai economy. the organizer of this conference, president charamporn, has kindly asked me to talk about “ financial challenges in global capital markets ”. this is an especially relevant topic because, this year, the key challenge for thailand is the challenge of weathering the financial and economic turmoil from the euro crisis. more than one year ago, i had the honor of giving a talk here. some of you who were in attendance may recall that i labeled 2011 “ the year of rebalancing ” for monetary policy. why “ rebalancing? ” because we were steadily raising interest rates toward normal territory amid global and domestic economic recovery. well, that was one year ago. one year can be a long time, especially for financial markets. and, indeed, things have changed a great deal since then. we had the flood ; and the euro crisis. interest rate hiking was put on hold and rebalancing postponed amid post - flood recovery and reconstruction and especially amid global uncertainty due to the euro. now we project global economic recovery to be weaker than believed since the financial crisis in 2008. so if last year was the “ year of rebalancing ” what is this year? for monetary policy, this year is a year of risk and reassessment. by risk i refer to the possibility that the euro crisis may spread to asia and thailand. and by reassessment, i refer to how

not particularly binding ; it is more significant as a pre - emptive move designed to signal policy resolve in mitigating possible build - up of real estate bubbles. at present, the risk of real estate bubbles is not significant but should capital inflows surge again amid strong bis central bankers ’ speeches domestic demand and credit growth in real estate, macro - prudential measures may need to be tightened. on capital flow liberalization, we are moving to liberalize capital outflows so as to foster more balanced capital flows. this will help to balance fund flows and support exchange rate movements in line with economic fundamentals. in addition, with the rise of the aec, crossborder investment will facilitate regional competitiveness and realize supply - chain synergies. lastly, on financial sector liberalization, ongoing financial sector reform will also build financial sector resiliency to shocks from within and without. thailand ’ s financial master plan, now in its second phase, continues, and focuses on liberalization through increased competition, raising efficiency, and strengthening the financial infrastructure. we also view an efficient financial sector as supportive of unleashing long - term engines of growth, such as structural change. ladies and gentlemen, distinguished guests, at this point, i hope we have concisely and clearly laid out the monetary policy vision for thailand that can serve as a basis for your investment decisions, reassessment of the risks, and, ultimately, your continued partnership in the thai economy amid these troubled times of global uncertainty. on that note, let me conclude my talk here. bis central bankers ’ speeches