other assets such as commercial real estate and consumer loans may come under greater pressure, affecting bank profitability. with profit declining, banks may become more risk averse to protect capital, putting more pressure on credit extension and the real economy. so, latest us data point to a weaker outlook ahead with more downside risks in the nearterm. the risks include further correction in the housing market, continued tightening of the credit conditions, and further decline in economic activities. outside the us, the economic picture looks less negative. while the adjustments in housing market are also ongoing in europe, and some european banks have reported losses in cdos, the impact on economic activities is expected to be more limited. for example, consensus forecasts in february, revised downward the euro zone ’ s gdp growth for 2008 by only 0. 3 percentage points from december compared with a 0. 5 percentage point downward revision for the us. for southeast asia, the impact is also forecasted to be limited. latest consensus forecasts for southeast asia ’ s gdp growth is 5. 7 percent for 2008, declining slightly from the forecast of 5. 9 percent in december last year. these forecasts, together with the latest data, suggest that, in the short - term, things will likely get worse before they get better, and the slowing of growth in the us will impact growth globally. the key question, at this time, is how deep can things get before we see a turnaround. this is definitely an important, but a difficult question to answer. market participants as usual will have a range of views, and i personally do not intend to offer another prediction. instead, i want to share with you my thoughts on the current developments and on what this will mean for thailand. to begin, one context that i think is useful in understanding the current turmoil is the unwinding of the global imbalance, triggered by corrections in the us housing market that began in 2006, and is now ongoing. such unwinding is a necessary process to clear excesses and reduce financial leverages that have been built up in the form of high level of the us ’ s current account deficits. economically speaking, to reduce the deficits, the value of the us dollar needs to fall and the levels of us long - term interest rates need to rise. exchange rate adjustment is very much ongoing. the us dollar has declined by about 8. 0 percent in nominal effective terms since 2006. and reflecting this, the us current account began

, 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