Ladies and gentlemen, It is against this background of economic recovery that the stance of monetary policy in the past two years has been accommodative, given the absence of inflationary pressure. Reflecting this, the policy interest rate has been cut gradually since late 2001 to help stimulate domestic demand, ease financial constraints of the corporate sector, and ensure an uninterrupted process of recovery. So far, the low interest rate environment has been instrumental in reinvigorating domestic demand and maintaining the momentum of recovery. Such an environment, I believe, would need to be maintained until the expansion in consumption and exports was sustained enough to have led to a firmer pick-up in private investment. This, for the most part, has been a rationale behind our decision to lower interest rates given our strong external position and the absence of inflation. Ladies and gentlemen, To recapture, the Thai economy has managed well both in terms of growth and stability amidst external uncertainties and shocks like SARS. The recent performance reflects to a large extent favorable ingredients for further prosperity, including resilient confidence, robust domestic demand, and export competitiveness. It is fair to say that we have done well, but the true test of success is still down the road. At this juncture, it is important that we do not turn the corner to complacency but rather face the challenge of how to sustain or even raise growth slightly without creating problems in the long run. I have three challenges for us to think about.
For example we are not certain that any leading bank today consistently adjusts the value of all of its assets based on each asset’s contribution to diversification. Consequently, for the time being we have decided instead to establish standard estimates of diversification that banks would apply. I know that many members of the industry have accepted that choice as prudent for now, but you have also stressed the need to move forward with an approach that is more consistent with the existing treatment of market risk and the emerging practices in operational risk management. We are ready to start this work as soon as it is possible. Still, portfolio theory suggests that an obvious next step to further enhance the risk-sensitivity of the capital framework would be to incorporate calculations of diversification benefits into  BIS Review 42/2003  5  the framework. In the coming years, and we can start very soon, we look forward to working with banks, with banking associations such as the BBA, and with academics and researchers to find ways to move Basel in the direction of full credit risk models. Likewise, the Committee must continue to monitor developments in the industry to be prepared to harness other improvements in risk measurement and management practices. It is at once exciting and perhaps a bit daunting to think about the work ahead for all of us, whether on a national, regional, or global level.