the chance that volatile capital inflows will create substantial risk to the economy. this calls for the need to continue with policies to strengthen and reform the financial system. and to the extent that sustained inflows generate the need for real resources to be reallocated across the economy in response to changes in relative prices, a high degree of flexibility in the local economy will be needed to support these adjustments, which will lessen the risks of imbalance and price pressures. the second issue to think more clearly about is the disconnect between the global nature of the problems facing central banks and the domestic orientation of the policy response. as i noted earlier, effectiveness of the domestic policy response tends to weaken when the challenge is of a global nature. a case in point is the current cycle of capital flows which, in essence, is a global phenomenon driven by exceptionally low interest rates in the major economies. hence, policy response calibrated with domestic orientation may be of limited use if the problems at the source remain. this means that the thinking on policy needs to broaden to explore possible benefits of a closer coordination of policies between countries, especially when central banks face similar challenges of a global nature like capital flows. such coordination will elevate central banks ’ policy - making to a new level, commensurate with the new challenge posed by the post - crisis globalisation.

pongpen ruengvirayudh : thailand in 2014 – recent developments and challenges ahead keynote address by ms pongpen ruengvirayudh, deputy governor for monetary stability of the bank of thailand, at the thomson reuters fx community forum 2014, bangkok, 18 february 2014. * * * distinguished guests, ladies and gentlemen, 1. it is a distinct pleasure to be back here again and i would like to thank thomson reuters for the invitation. to the winners of this year ’ s fx awards, i would like to congratulate you on your notable achievements. and to the rest of the market participants, i would like to express my thanks for your continuing contribution to the development of the thai foreign exchange market. 2. much has changed both at home and aboard since i gave an opening address at this event last year. on the external front, the us federal reserve ’ s planned scaling - down of its qe program has sparked turbulence in the emerging markets as investors continue to speculate on the fed ’ s exact tapering timeline. on the domestic front, the absence of political solutions continues to subdue public and private spending, with unavoidable repercussions on overall growth outlook. certainly, the interplay between these recent developments will have profound implications for the thai economy to some extent going forward. for this reason, i would like to take this opportunity to share with you my views on these important developments and the potential challenges they pose to the thai economy. 3. let me start with the developments on the external front. as you remember, around this period of last year, one of the issues that had attracted a lot of public attention was the continued influx of fund flows into the emerging markets including thailand. but this theme has suddenly changed when the us federal reserve signaled in may its intention to scale down, and eventually terminate, its asset purchasing program. the signaling immediately sparked turbulence in capital and currency markets in emerging economies and certainly serves as a recurring reminder that the linkages in the international economy are as psychological as they are mechanical. from june to august, thailand, like other economies in the region, continued to witness further episodes of outflows as investors continued to reform their expectations towards the exact tapering timeline. 4. in the recent months, turbulence in the markets seems to have somewhat been moderated. this possibly reflects the fact that much has been priced in during the earlier outflow episodes, as well as the fact that it has been clearer to the markets