The recovery thus seems to be holding, but it should be acknowledged that expectations for economic growth in the area continue to be very moderate in the short and medium term. The ECB continues with an expansionary policy stance. We have reached an all-time low in the interest rates on the main refinancing operations, now at 0.25%; since July, a forward guidance policy has been pursued, conveying to economic agents the ECB’s decision to keep interest rates low for a prolonged period and to maintain generous liquidity provision. Maintaining and stepping up this expansionary monetary policy has naturally had to do with the recent course of inflation, proxied by the consumer price index, which stood in October at 0.7% for the euro area as a whole, a rate substantially off the target of 2%. Against this background, the first signs of the start of a recovery in the Spanish economy have begun to emerge. As you know, in the third quarter of this year Spain posted its first positive quarter-on-quarter rate of change in GDP since mid-2011. In the past two quarters, consumer spending has shown signs of stabilising, and even of picking up slightly. This positive trend should continue over the coming year, although the need for households to carry on reducing their debt will probably check the expansionary behaviour of this demand component.
As such we found ourselves pursuing austere macroeconomic policy, which worked to curtail excessive spending and restrain aggregate demand, thereby improving Thailand’s external accounts and stemming capital outflows. At the same time, we had to adopt stricter prudential standards to raise confidence in our financial institutions. Banks inevitably had to scramble to raise capital in order to meet the provisioning requirements under our new and stricter definition of “non-performing loan”. In addition to the adoption of international best practice with regard to asset classification and provisioning, other banking practices had to be upgraded. For example the industry has had to get used to a new way of doing business, pursuing good corporate governance, improved disclosure, stronger accountability and better risk management and control. These are indeed significant changes from the traditional way business had been conducted in the past, and in turn will need commitment of management and staff, inputs and resources to bring the industry to full compliance with international best practices, not to mention a new supervision framework for the authorities. The new financial institution law, pending consideration by Parliament, will provide the BOT with a clear mandate and accountability to regulate and supervise financial institutions under a new framework, including such procedures as prompt corrective action, and reduced scope for use of judgment, among other things. On our part, the central bank has also gone through a process of self-examination.