prasarn trairatvorakul : thai monetary policy in the environment of excess global liquidity speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the thailand focus 2011 – enhancing thailand ’ s competitiveness over the next decades, bangkok, 28 march 2011. * * * ladies and gentlemen, it ’ s an honor to speak before you today at the thailand focus conference. early this morning you heard prime minister abhisit vejjajiva speak on thailand ’ s competitiveness ; and later finance minister korn chatikavanij on fiscal policy. to close the circle, i will speak on monetary policy to complete your view on the investment opportunities and prospects of the thai economy. as international investors, i believe, you want to have a firm understanding of the country ’ s policy environment. this is what i will discuss today – the monetary policy options going forward in light of my assessment of the global economy and the thai economy. the assigned title of my talk today is “ thai monetary policy in the environment of excess global liquidity ”. let me stress that i have a different opinion on the issue of excess global liquidity than most. global liquidity is currently problematic in the sense that it is fluid, rather than excessive. let me discuss why. first, let me give you my assessment of the global economy. the global economy has entered a phase of fluid global liquidity amid uneven recovery and shifting risk appetite. this phase is characterized by weak recovery in the advanced economies which prompted loose monetary policy and extraordinary monetary measures such as qe2 in the us that have resulted in artificially low interest rates in the advanced economies. these record - low interest rates encouraged investors to seek out higher return in risky emerging market assets, particularly here in asia. in addition to the push factor of low interest rates and weak recovery in the us and euro area, strong economic fundamentals in asia, as reflected in growth and eventual currency gain, served as a pull factor. as a result, capital became more “ fluid ” – constantly in search of yield and therefore very sensitive to news and rumors. such search for risky yield resulted in capital inflows into eme assets last year, as you all know. these inflows contributed to the large appreciation of the thai baht last year, and indeed other emerging markets. here i want to emphasize that the inflows was due to a reallocation in global portfolio, or a

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