can make it easier for thailand to cope with capital flows, at least partly, through capital market development. an efficient capital market is like a good irrigation system that helps channel flows into productive uses. such a market, with enough breadth, could also become a shock - absorber towards capital inflows, quantity - wise, and would be a complement to the flexible exchange rate that acts as a “ pricewise ” shock absorber. a market that has a wide variety of products and instruments, varied types of investors, as well as competitive services will likely be more stable by itself and benefit us all. an efficient capital market is thus one we should aim to strive for. i hope that i have so far convinced you that living with capital inflows is not easy and will require efforts from the public as well as private sector. indeed, to successfully live with capital flows is a delicate task, as the title of this speech suggests. on my part, what i want to assure you is that we at the bank of thailand are aware of the interrelated issues and always take them into account when making a policy. tough choices, however, will always have to be made. we will try our best to balance between different stakeholders ’ needs. for you, as investors, we take to the point that you value policy transparency, and we aim to provide you as such, in addition to macro - stability which is our overriding mandate. thank you. bis central bankers ’ speeches

thailand were consistent with our thinking on recent capital flow developments. specifically, many have argued that the hikes would actually induce more capital inflows that add pressures on the currency. on this issue, let me say the following. under inflation targeting, the policy interest rate is used primarily to help maintain price stability to achieve long - term balanced growth of the domestic economy. designating the policy rate to another role, like managing capital flows, would then confuse its primary role, especially when the risk of overheating together with a surge in capital inflows presents policymakers with a dilemma. thus, our interest rate policy is not meant to deal directly with capital flows. its side effect on capital flows is, however, not to be ignored. a fine balancing act is also needed when it comes to making interest rate decision given this dilemma. perceivably, large interest rate differential may be a push factor for capital flows. however, given relatively small interest rate differentials between thailand and major economies, we view that a gradual increase in the policy rate should not in and of itself be a cause of further inflows. in fact, we have empirically found that other factors such as growth differential and global risk appetite and liquidity are far more important than interest rate differential in explaining the recent surge of capital inflows to the country. on the other hand, given the pickup in global and domestic demand recovery, the risk of inflation has recently materialized and posed increasing threat to domestic price stability. with all these considerations, we deem that the recent interest rate normalization was necessary and was consistent under our inflation targeting, while its impact on further capital inflows should be minimal. so let me recap our challenge. capital inflows are beneficial but they are not cost - free. to help deal with capital inflows and their effects on the macro economy, we have the flexible exchange rate, macro - prudential measures, and various forms of capital account regulations as our tools, while the policy rate is preserved for its primary objective of domestic price stability. each of the tools has its own advantages and disadvantages. to deal with this challenge, as you may already notice, a balanced use of tools is needed, and that balance could very well evolve over time. bis central bankers ’ speeches ladies and gentlemen, to live successfully with capital flows will require not only the central bank to do its work properly. for all of us at this forum, i believe that we