Given the possibility of persistent expectations of high inflation following the run-up of oil and other commodity prices early this year, the issue of central bank’s credibility in achieving price stability has become even more critical. Indeed, over the past few months, there was intense debate on the appropriate monetary stances to deal with the current inflation problem. The Bank of Thailand has decided to gradually withdraw the demand stimulus, by increasing the policy rate by a total of 50 basis points during the past two Monetary Policy Committee Meetings. The rationale is that uncontained demand, boosted in no small part by the presence of large real negative interest rates, as well as relatively small output gap during the first half of 2008, could potentially fuel even more severe and persistent inflation and force us to take a bigger dose of bitter medicine with significant loss of economic growth in the future. Second, to further enhance the effectiveness of central bank’s objective in achieving price stability, it is crucial to establish an understanding between the central bank and the government of the lagged-nature of monetary policy transmission, and the need for targeting stability to effectively anchor long-term inflation expectations. To this end, the recently passed BOT Act specifies that, at the end of each year, the Bank of Thailand’s Monetary Policy Committee, jointly with the Minister of Finance, will be required to set an annual target for monetary policy for the following year.
By the middle of this century, the median age of the world population is expected to increase by 10 years to 36 years. Globally, the proportion of persons aged 60 years and older is forecast to double. The fastest growing group of the older population is made up of those who are 80 years old or more. This age category is projected to increase more than five-fold over the next 50 years. While ageing is indeed a global phenomenon, it is likely to represent a more onerous challenge for developing countries than for developed ones. The majority of persons aged 60 and over will be found increasingly in developing countries; and as the pace of population ageing is much faster in these countries, they will have less time to adjust to its effects than the developed countries. Developing countries, moreover, will have to meet this challenge starting from a lower level of socio-economic development. For instance, the elderly in developing countries will be living mostly in rural areas and hence will face additional difficulties compared to their counterparts in developed countries who tend to live in urban centres. These differences imply that the policymaking capacity of developing countries will be tested more severely. More specifically, there will be important decisions to take regarding social security schemes, particularly traditional pension systems in which today’s workers pay for the benefits of today’s retirees.