fundamentals remain sound with economic stability intact. last year, monetary policy in thailand was focused on limiting the second round effects of the oil price increase on inflation. that focus i think was well met. policy rate has been held steady from midyear last year, and since then, inflation pressure looks to be moderating. latest data show a further consolidation of inflation in december. so, under the current softening trend, baring no surprises on the oil price, there is also a possibility that, in thailand too, inflation could be less of a policy concern this year. under this scenario, therefore, there could be greater room for monetary policy to aim for a balance between growth and inflation. i noted earlier that, to ensure continued momentum of expansion, what we need to see in thailand this year is a stronger turnaround in domestic demand, especially in private sector investment. this is, in a way, the most important must - have macro development for thailand this year. financial environment supporting private sector investment, i think, is very positive and conducive this year, with lower oil prices, easing domestic inflation, ample liquidity, and a more stable interest rate environment. but to substantially lift investment, what we need to see in thailand is a continued improvement in business sentiment and confidence. here, therefore, lies an important issue for policy. on this, i am quite confident that the ongoing efforts by the government to promote growth with stability will successfully lead to continued improvements in business sentiment and confidence, which will be positive for our investment going forward. i want to end my brief remarks this morning with a few year for our domestic banks and financial firms as they continue to support the economy while preparing for a number of important regulatory changes that are set to take place this year. beginning this month, basel ii will be launched in the g7 economies. for thailand, this means we will have less than two years to prepare for our own eventual adoption of basel ii, which has been slated for end 2008. at this time, most banks in thailand have already decided on using the standardized approach for the calculation of minimum capital. and to prepare for basel ii, we will be asking our banks to begin reporting their capital under the new standardized approach from the third quarter of this year onwards, in parallel with the usual calculation under basel i. this, i think, will be an important exercise for our banks before we formally begin basel ii at the end of next year. this year will also see financial

, that is, cash. some of these costs are direct, such as the fdic fees paid by domestic banks on their liabilities less capital and transactions costs in brokered markets, while others relate to the costs associated with regulatory requirements on capital and liquidity ratios. even if the market for funds were perfectly competitive, these costs should drive a wedge between ioer and other money market rates. as a result, the ioer rate does not directly establish a firm floor under money market rates, but instead can be thought of as a magnet, with the strength of its pull determined by these balance sheet and competitive frictions. while these frictions may vary over time, they should generally do so only slowly. 7 the pull of ioer should also be affected by the quantity of reserves in the system. an increase in bank reserves that increases bank assets makes regulatory leverage ratios more binding, raising the shadow marginal cost of bank balance sheets. it also accentuates the competitive frictions i described above, and reduces individual bank demand for additional reserves. 8 as a result, as the level of reserves declines during normalization, marginal balance sheet costs should fall, competitive frictions should lessen, and the demand for additional reserves from individual banks should increase. these factors should strengthen the magnetic attraction of ioer and pull the fed funds rate and other market rates up toward – and at some point equal to or above – the ioer rate. however, excess reserves will remain plentiful for some time, and while that ’ s the case the fomc intends to use an on rrp facility and other tools as needed to complement ioer in controlling the fed funds rate. 9 when the desk conducts on rrps, as in its current testing program, it sells treasury securities held in the soma with an agreement to buy them back the next business day at a pre - determined price. this leaves the size of the soma portfolio unchanged, but shifts some of the liabilities on the fed ’ s balance sheet from bank reserves to reverse repos. similar to ioer for banks, on rrps provide a risk - free overnight investment directly to a broad range of bank and non - bank counterparties. by reaching financial institutions that are ineligible to earn ioer, an on rrp facility widens the universe of counterparties that should generally be unwilling to lend at rates below those available from the fed. such a facility could also enhance competition in money markets by offering an alternative safe investment and thus