bank of thailand ’ s monetary policy : navigating towards sustained growth veerathai santiprabhob, governor of the bank of thailand thailand focus 2018 august 29, 2018 ladies and gentlemen, it is my pleasure to be addressing you this morning. i will take this opportunity to speak to you about thailand ’ s economic outlook and monetary policy at this important time. but before i move on, i would like to first thank the stock exchange of thailand for hosting this event, and all participants for your interest in the thai economy and the thai capital market. this is an important time, not only for the global economy, but also for the thai economy. after five years of sub - par growth rates, thailand has managed to restore economic growth to its potential. as the economy moves from a recovery phase towards an expansionary phase, the role of macroeconomic policy needs to evolve accordingly. what used to be a stimulative tool will eventually have to transition into a support on which the economy could grow on a sustainable basis. furthermore, we need to step up structural reform policy to address long - term challenges. ladies and gentlemen, the turning point of macroeconomic policy stance is not a straightforward one. imagine yourself on a road trip with a group of friends. you were driving, and one of your friends asked you, “ when will we make a turn? ” if you have a gps navigator or open up google maps, you might be able to say with precision, “ in 2. 5 kilometers. ” when talking about a policy course, the answer might be, “ in the next two or three quarters, if things go according to plan. ” in real life, we policymakers do not have the luxury of having a gps navigator, not to mention the fact that this said turn could be moved closer or further away without giving any warnings in this volatile world. what we do have, however, are indicators we observe from our surroundings, and indicators of road conditions and possible storms ahead of us. similarly, the mpc considers a number of factors when formulating a policy decision — not only the current state of such factors, but also their longer - run trends and expectations of risk scenarios going forward. for a small open economy in an increasingly volatile world, mpc ’ s decisions will have to be data dependent. in my address to you this morning, i will share with you the factors that the mpc considers when making policy decisions. since the main objective of a flexible

decision, one prominent view is that financial stability should be addressed mainly by macroprudential tools, and that, if effectively deployed, macroprudential tools can free up monetary policy to focus on price and output stabilization objectives. while this might hold true in some advanced economies, operationalizing macroprudential tools in practice — especially in emerging markets — has proved challenging. limited experiences and complex interactions among various policy tools make calibrating macroprudential measures extremely difficult, not to mention the risk that these tools might inadvertently push some activities outside of the regulatory umbrella into shadow banking. my view, therefore, is that macroprudential tools are complements, rather than substitutes, for the broader monetary policy stance. ladies and gentlemen, the three factors i have mentioned — inflationary pressure, growth, and financial stability — are factors that the mpc consistently looks at when deliberating monetary policy ’ s transition under the flexible inflation targeting framework. but before i make my concluding remarks, i would like to mention that when we are confident that economic growth is close to its potential and inflation will remain within our target range, the mpc can take a longer view. and this is when policy space should be taken into consideration. two considerations are at play. first, history has taught us that a period of prolonged economic expansion comes with asset price bubbles and market correction and recession. a gradual, anticipated, movement in the policy rate reduces the risk and the size of such outcome. second, through the most recent economic downturn, our policy rate has been lowered to 1. 5 percent, a quarter percentage point above the historic low level of 1. 25 percent implemented in 2009 immediately after the peak of the global financial crisis. this was done with the aim to stimulate economic recovery. we now have limited “ monetary policy space ” to act should unexpected adverse economic conditions emerge. in very much 4 / 5 the same way that our foreign reserve build - up in times of capital inflow allows us room to conduct a diverging monetary policy and smooth out sudden capital outflows as we have seen these past months, building up some policy space for the future should be a prudent consideration. ladies and gentlemen, with the ample external buffers we have built up, thailand so far has the autonomy to deliberate our own monetary policy. i have outlined for you the main factors that the mpc considers : inflation, growth, and financial stability. we expect this year ’ s headline inflation to be in