is especially important when the economy is energy inefficient. let me elaborate further. conceptually, potential output is the level of output which can be sustained over an extended period without exerting upward or downward pressure on inflation. when the actual level of output is above potential output, inflation tends to rise. conversely, when the actual level of output is below potential output, inflation tends to fall. in this regard, the task of monetary policy can be loosely described as getting the economy ’ s actual output as close as possible to potential output – tightening when actual growth exceeds potential and loosening when actual growth falls short of potential. now, if potential output also falls in the face of persistent supply shocks, then it is possible for inflation to persist even when actual output growth is moderating. for concreteness, imagine a car going at a 100 - kilometer - per - hour speed limit on a highway turning onto a local street where the speed limit is now 60 kilometers per hour. even if the driver reduces the speed of the car to 75 kilometers per hour, a 25 % reduction perhaps as a result of a narrower roadway, he will still be charged with speeding. in real - world policy making, this is what happened to the united states in the 1970s when falling potential output resulted in high and persistent inflation despite the slowing economy. at the time, the federal reserve overestimated the u. s. potential output during the oil shocks and unknowingly pursued policy that kept the economy going at the rate in excess of the reduced potential. the current tightening monetary policy of most central banks around the globe amid supply shocks reflects much of these concerns. it is important to recognize that growing beyond potential for too long is a serious threat to economic stability. to use monetary policy to accommodate growth when potential output is deteriorating would aggravate inflation and the subsequent disinflation effort would entail substantial costs. the u. s. disinflation experience in the early 1980s was the prime example of this. known memorably as the volcker disinflation, the federal reserve took about four years to bring down inflation, but at a cost of the 1981 - 2 recession which was the most severe in the post - world war ii period. of course, one could argue that monetary policy is ineffective against supply shocks and therefore raising the interest rate would only further hurt the economy. it is true that monetary policy is a demand management tool. it is true that the best remedy to

of funds. fifth, the banking sector is now much healthier than even a few years ago. the bis ratio of the entire banking system remained high at 15. 3 per cent in may. despite the economic slowdown, both ratios of gross npl and net npl to total loan declined slightly since the third quarter of last year. in fact, the outstanding amount of npl declined in the last quarter. in addition, the implementation of ias39 accounting standard in 2006 - 2007 and the preparation for the adoption of basel ii at the end of this year have together strengthened the stability of our banking system. with insignificant exposures to collateralized debt obligation ( cdo ) investments, the thai banking sector as a whole is also immune to the u. s. sub - prime spillover. last but not least, thailand is among the world ’ s top places when it comes to the ease of starting and operating businesses. the recent report, “ doing business 2008, ” by the world bank upgraded thailand by two places. despite all the storms we faced, we are now ranked at 15th place out of 178 countries for the most attractive destination to invest. this reflects a better infrastructure for doing businesses in thailand. the improvement was cited on the back of e - custom system introduced since october 2006. cost reduction, lesser time consuming and fewer procedures for imports and exports, all induce efficiency for international trades. overall, we have strengthened the infrastructure or the micro aspects of doing businesses in thailand. ladies and gentlemen, in all, i believe that quality investors look at both economic performance and policy credibility. it is obvious that short - term performance is not difficult to achieve but a consistent performance across horizon is a challenge. getting the political will as well as policy mix and actions in the right direction is essential. the bot has a clear stance and stands ready to secure the overall health of the thai economy. the mpc has done its action last meeting and i believe we are on the right track. i need not remind you that thailand is no stranger to difficult challenges. while being patient, we certainly have strong fundamentals for the second wind. it is just a matter of time to come. at this critical juncture, the most the bank of thailand can do is to keep the macroeconomic environment conducive to sustainable growth and productivity improvements. the key to high - performance economy inevitably lies in supply - side policies that raise the economy ’ s potential growth. the fact that supply - side policies take