the yield curve is important mainly for two reasons. first, it is an indicator of what the market is thinking about the expected path of future monetary policy. this follows because long - term rates under certain conditions reflect expectations of the future path of short - term rates. of course, besides future rate expectations, longer maturity yields typically contain risk premia. the quantification of these premia is not without challenges even in normal times. rudebusch, g. and j. williams, ( 2009 ), “ forecasting recessions : the puzzle of the enduring power of the yield curve ”, journal of business & economic statistics, american statistical association, vol. 27 ( 4 ). chinn, m. and k. kucko, ( 2014 ) “ the predictive power of the yield curve across countries and time ”, mimeo available at http : / / www. ssc. wisc. edu / ~ mchinn / chinn _ kucko _ feb2014. pdf bis central bankers ’ speeches the second reason results from the yield curve being a key part of the transmission mechanism of monetary policy. therefore, it is something the central bank wants to influence, not only just learn from. in particular, while the first step in the transmission process of monetary policy is typically related to very short - term interbank interest rates, the wider transmission requires that these effects spread more widely to medium - and longerterm rates. in the next step, the monetary policy impulse spreads to the pricing of assets that are relevant for the financing conditions of households and corporations, their consumption, production and investment decisions and, finally, inflation. the impact of the crisis naturally, the crisis has brought up a number of challenges for our understanding of the yield curve. for example, credit and liquidity premia have been important drivers of sovereign yields in the euro area and elsewhere, thereby complicating the process of inferring market expectations of the future path of policy, and also impairing the transmission mechanism of monetary policy to the wider economy. moreover, high sovereign spreads in the euro area have raised the question of what is the appropriate yield curve to monitor. in an article in the july monthly bulletin we discussed this issue in the context of measuring the euro area riskfree rate. should we use bund yields, euro area average aaa rates or ois rates, or does it depend on the matter at hand? incidentally, an intriguing question in a currency union is the

that the bank of thailand has maintained for the past 5 years and is now beginning to bear fruits. the accommodative monetary policy resulted in robust growth of mortgage lending as well as other types of consumer loans. consumer confidence rose to its highest level in recent years. domestic investments improved too. i agree that at the moment not much of the new business investment was yet financed by bank loans. the entrepreneurs still rely more on their internal cash. but the latest investment indicators showed an annual rate of increase at a high of 23 %. domestic demands have been helped not only by direct government spending, but also by other government schemes that injected funds directly to the grass roots. we had the bht 74 billion village fund ( approx us $ 1. 7 billion ) whereby each village had been allocated bht one million to on lend to village members, often under group mutual guarantees. we also had the micro loan scheme organised by the government savings bank, the government owned bank, which lend directly to the poor. ladies and gentlemen, the good news went on. despite the strong recovery, we have been able to keep inflation under check. headline inflation for 2002 was 0. 7 % and core inflation 0. 4 %. the adverse affect from high oil prices has not translated into much inflation. our currency was also quite stable. for the whole of 2002, the bath appreciated against the us dollar by less than 2 %, which was quite modest compared to other asian currencies. the international reserves level was also ample at us $ 38. 9 billion, allowing us to aim to pay back all the loans under the imf program by the end of july this year. moreover, three major credit rating agencies, s & p, moody ’ s, and fitch ratings, all assigned better outlook to the thai economy. japan credit rating agency did in fact upgrade thailand ’ s sovereign rating from bbb to bbb + last november. such widespread improvement in confidence among consumers, entrepreneurs, and investors helped support both consumption and investment throughout the year. we have also made a substantial progress in solving the non - performing loan problem. the thai asset management corporation, the central organization run by the government that took over bht 700 billion of npl ’ s from the commercial bank system has already worked through two - thirds of their portfolio. the recovery rate was 135 % of the tamc ’ s purchase prices, which was the banks ’ written down value. this means that the tamc should not add any further