##g of 4 - 8 quarters before a change in the policy rate can be fully transmitted to the rest of the economy, policy consideration needs to be forward - looking. upward inflationary pressure over the past few years, due to higher oil prices, has been tamed by monetary tightening. we raised the policy rate 13 times between august 2004 and june 2006, bringing the policy rate to 5. 00 percent from 1. 25 percent per annum. hikes in the policy rate have brought the money market and commercial bank interest rates higher over the past 2 years. our policy response proved timely, with inflation and its second round effects well contained. recently, domestic demand, particularly in private consumption and investment, showed signs of a slowdown, while economic momentum from exports was expected to moderate, given the prospects of the global economy in 2007. since inflationary pressures have subsided in line with easing energy prices, monetary policy could be eased in support of a further expansion of the economy. the mpc, thus, lowered the 1 - day repurchase rate, the policy rate, to 4. 75 on 17 january meeting and a further 25 basis points reduction on 28 february and expect to pursue a downward path of interest rate in a cautious manner. this accommodative monetary policy stance will help stimulate domestic demand by supporting economic sentiments, cutting down financial costs and preparing the stage for private investment recovery once confidence has returned, most likely in the 2nd half of this year. having considered the recent economic conditions and monetary policy, we will now turn to the prospects and challenges of the thai economy as we move forward, and how we are going to deal with them. ladies and gentlemen, for this year, we expect the economy to continue facing a number of important challenges both internally and externally. internally, political uncertainties, which have adversely affected private sector's decision to invest, are likely to stay until the next general election. externally, the threat of an impending global imbalance remains high, while the global economy is expected to slow down. moreover, the risk from volatile global financial markets lingers, while the baht could continue to appreciate against the us dollar. it may be a great concern to you whether the thai economy will be resilient enough to withstand such an adverse environment. however, we believe that sound fundamentals and the appropriate policy stance would prepare the economy well in the long term. facing internal challenges, the monetary policy stance has become more accommodative as mentioned earlier

such domestic upward pressures on hicp inflation remains conditional upon continued wage moderation. in this respect, it is crucial that there be no second - round effects arising from wage reactions to the current increase in consumer prices. currently available forecasts give rise to the expectation that inflation could fall slightly below 2 % in 2002 if there are no deviations from the path of wage moderation observed in recent years. at the current juncture, it is important to recall that interest rate levels in the euro area are not high historically, neither in nominal nor in real terms. financing conditions in the euro area are therefore conducive to economic growth. moreover, monetary policy cannot raise the production potential of the euro area. in this respect, in december 2000 in the context of its regular review of the reference value for m3, the governing council of the ecb, while acknowledging that progress had been made in the euro area in the field of structural reforms, noted that it was difficult to find clear evidence of signs of lasting increases in trend productivity growth in the euro area. the improvement in structural conditions necessary to raise potential growth is undoubtedly of utmost priority for the euro area. ongoing comprehensive structural reforms of labour and product markets remain essential in order to improve the functioning of markets. fiscal policy will also have to make its contribution towards enhancing the growth potential of the economy. despite favourable economic conditions, in 2000 no further progress was made in reducing structural fiscal deficits in the euro area as a whole. the challenges in the area of fiscal policy are to continue on the path towards consolidation, in line with the stability and growth pact, and at the same time to pursue further qualitative improvements on both the revenue and expenditure sides of the budget. a lowering of the tax burden is conducive to stimulating employment and growth, but it needs to be accompanied by corresponding restraint in public expenditure. although 2001 will not see economic growth as high as in 2000 owing to the weakening of economic activity abroad, the medium - term prospects for the euro area remain good overall. the euro area will be able to successfully meet the challenges ahead. the treaty has laid down an appropriate framework for the allocation of tasks among policy areas. monetary policy can best support economic growth over the medium term if it is strictly focused on its primary objective. at the same time, the responsibility for the reforms needed to enhance the growth potential of the euro area and to boost employment creation lies with governments, as well as with the key national economic agents in labour