, risk preference has shifted from safety to riskier assets with the improved global sentiment. particularly, global stock markets have rallied far beyond the modest global recovery. this can be seen in the msci world index which surged by almost 25 % during the last 9 months while global growth remains at low level. 5. rallies in stock prices on the back of over optimistic sentiment may sow the seeds of potential bubble. although the market realizes that a further rise in the asset price would virtually compress yield, the market appears to be less concern about a bubble in asset prices. therefore, there is a risk of a sharp correction which we all witnessed in the recent episode in the thai stock market last week. 6. the second dimension of the great rotation is the global fund flow, which is one of the greatest challenges emerging markets are experiencing. the continued monetary easing in advanced economies, economic growth differential and protracted low interest rate environment are key factors pushing investors to search for yield ; fund flows have therefore switched from advanced to emerging economies. 7. this second dimension of the great rotation is a concern to policymakers in the region and has called for wider public discussions among academics, businesses and policymakers. discussion typically centred on the potential recourse to macroprudential or bis central bankers ’ speeches unconventional measures on the part of recipient countries, given that such practice has been adopted by the source countries of the fund flows. as market participants, we all recognize the benefits of capital inflows that provide a two way view for the market, thus adding depth and breadth to emerging financial markets. therefore any considerations on the use of capital flows policies need to be carefully thought out with consideration of potential unintended consequences and impacts. needless to say, there is greater acceptance for these measures to be part of the toolkit of the authorities and central banks are continually monitoring the markets and ready to take actions in cooperation with regulators and market participants. 8. to respond to the surge in inflows, the bot has chosen the route of capital account liberalization as the most natural counter to encourage the outward flows of capital. we believe that this measure will help lessen the pressure from the rotating fund flows as well as provide the opportunity for thai enterprises to secure new markets in preparation for the asean economic community ( aec ). the roadmap includes relaxation in outward direct investment and portfolio investment. in addition, the bot has allowed thai corporates to issue foreign exchange denominated bonds domestically. there

. bank of thailand has experience in employing several macroprudential tools since 2002 to prevent financial instability that may stem from, for example, excessive credit card loans to sub - par debtors, excessive foreign exchange speculation, and a formation of real estate bubble. i would like to refer to another of our policies to maintain financial stability. to ensure capital flows and exchange rate stabilities, the bank of thailand uses a managed float on exchange rates. the policy allows the thai baht to adjust via market mechanism, helping to stabilize against volatile capital flows. it also allows flexibility for the bank of thailand to influence the exchange rate in extreme events in order to avoid excessive volatility. all the mentioned policies have helped to keep the current economy in good balance. today, capital flows, private sector balance sheets, as well as real estate values remain healthy, which should allow private spending to return with confidence and enable fast recovery. however, there are risks we must closely monitor over next year. as the u. s. economy continues to recover strongly, earlier timing of the u. s. interest rate normalization is anticipated, which could result in capital flow volatility. at the same time, household debt, at 83 % of income, is also a factor to be monitored with caution. we have now covered growth, price, and financial stability. the central bank aims to maintain all three facets of stability for continuity in order to support growth potential. with a promising recovery prospect, minding the future risks to financial stability and being equipped with stability tools tested and refined over time, the monetary policy committee will carefully weigh the tradeoff between short - term gains and longer - term risks and ensure that the economy will be provided with enough financial ease to recover sustainably to its potential. ladies and gentlemen, apart from the deviation from potential i mentioned earlier, the current economy shows symptoms that potential growth, which depends on labor, productivity and infrastructure development, may have reached its limit. at this stage of our discussion, let me refer to some prominent symptoms. thai labor supply has started to gradually decrease due to the trend of aging society. research has shown that increasing labor supply by increasing retirement age and reliance on foreign labor will not be sufficient. since we must accept the aging workforce trend, we must rely on increasing productivity and efficiency through structural changes to lift growth potential, a task which requires supply - side policies. thailand ’ s productivity growth has declined since the asian financial crisis due to the misall