first, the new investment cycle in thailand may have taken off, led by both the private sector and large public infrastructure bis central bankers ’ speeches projects. many of these projects have high imported contents, and stand to gain from an exchange rate appreciation. spells of baht appreciation thus provide an incentive for many firms to implement a long - overdue technological upgrading and import more capital goods in an environment where labor is scarce and no longer cheap. in turn, these imports can help slow down the pace of appreciation and mitigate the adverse effects on export industry. furthermore, corporations that have expanded their operations overseas or plan to do so will also benefit from stronger baht which can help, to some extent, reduce the overall impact of baht appreciation on their businesses. with cooperation from all sides, including policymakers and private sector alike, thailand could seize this opportunity to strengthen the fundamentals of the economy further, and reap long - term benefits that are likely to be greater than short - term costs of adjustment. second, it is often overlooked that under flexible exchange rate, adjustments in the currency ’ s value themselves can be an effective buffer for capital flow volatility. in a wellfunctioning market, a currency that is overvalued relative to its fundamentals would be subject to market discipline that helps slow down further appreciation. indeed, estimates from both the international monetary fund and various investment banks suggest that the current value of thai baht is consistent with the underlying fundamentals. to promote a deeper foreign exchange market and foster more balanced capital flows, the bank of thailand also launched a capital account liberalization master plan, which entailed liberalization of thai investment abroad and a streamline of foreign exchange regulations. there are also continuing efforts to enhance the private sectors ’ adaptability and foreign exchange risk management. these initiatives should provide an extra layer of cushion to shield businesses against short - term market volatility. they are not, however, a substitute for structural improvement in productivity, which in the long run holds the key to success for the export industry. given that the global environment is still subject to uncertainty, capital flows may continue to be volatile, and risks to financial stability warrant close monitoring, it is more important than ever that monetary policy strikes the right balance between providing support to sustain growth momentum while ensuring long - term financial stability. in the judgment of mpc, the current stance of monetary policy remains accommodative, with the real policy rate still in negative territory. as

approach would inevitably lead to doing too little too late, as the cumulative impact of policy over the whole financial cycle is ignored. just as the proliferation of inflation targeting frameworks starting in the 1990s helped to bring down the level and volatility of inflation rates worldwide, a general trend towards a more systematic leaning against the financial cycle approach to monetary policy, especially among advanced economies, could yield significant benefits. i believe that if central banks coordinate on such a framework, and thereby adopt a longer through - the - cycle perspective in policymaking, the problems from cross - border spillovers and perceptions of competitive devaluations will be significantly diminished. the key challenge will be one of communication. as is well known, the long lags of policy creates a need for central banks to “ take the punch bowl away when the party gets going ”. given the longer duration of financial cycles, the need to act well before the risks become obvious may mean that central banks will have to “ take the punch bowl away even before the party gets started ”. but that is a political economy challenge that needs to be resolved and managed through careful redesign of central bank mandates. heed must be paid also to institutional arrangements, especially for central banks where the financial supervision authority lies with another body as coordination will be harder. this will take time. but the risks to financial stability is immediate. in the interim, central banks may need to interpret their mandates more flexibly and avoid overly narrow and zealous interpretations of price stability. inflation targets need to be implemented flexibly and over longer horizons. all the while explaining clearly and consistently the logic of policy. in doing so, it should be stressed that fundamentally, macroeconomic and financial stability are two sides of the same coin. macroeconomic trajectories cannot be sustainable if the financial sphere is out of equilibrium. and the avoidance of financial boom - bust cycles leads to better economic outcomes over the long run. the perceived trade - off between growth, inflation, and financial stability, therefore, is to a large extent an artifact of the short horizon focus of policy. ladies and gentlemen, the history of economic thought in the twentieth century has seen macroeconomics evolve through a series of intellectual transformations from the keynesian revolution to monetarism, and finally to the new classical or rational expectations paradigm. likewise, monetary policy has shifted through successive frameworks. from the system of fixed exchange rates under bretton woods, to monetary targeting during the great inflation in the 1970s, to