A risk management unit has been established to manage operational risks more effectively, by reviewing and monitoring areas of risks in central bank operations with a view to taking forward looking risk mitigation actions. Another important area that has been strengthened is in the process of monetary policy operation. The inflation targeting framework adopted by Thailand provides sufficient flexibility to take care of the challenges facing the economy. Through regular communication with the market and through open discussions on public policy issues, the central bank has fostered and enhanced the participation of academic and market interests. The Bank of Thailand’s monetary policy-making process was reformed to ensure a balance of transparency, independence and accountability. This is with the belief that transparency of operation limits discretion and leads to accountability. The Bank quickly moved towards greater openness in the provision of data and timely economic information. It is our belief that public acceptance and understanding of monetary policy is most important. And this will come about only with greater transparency and predictability. Conclusion Ladies and gentlemen, In conclusion, I hope that I have given you some updates and direction of where we are heading in this current environment. The experiences of Thailand are not significantly different from other countries emerging from a crisis and I therefore welcome any comments and suggestions which you may have. Before leaving you today, may I thank you once again for the honour to address this distinguished forum.
When inflation is high for a long period of time, an important role for monetary policy is to ensure that inflation expectations remain anchored as the shocks work their way through the economy. If expectations become de-anchored and trigger a wage-price spiral, it can lead to inflation becoming persistent even after the shocks disappear. Raising interest rates has a mechanical effect on demand and inflation, and thereby on inflation expectations. But when interest rates are starting from unusually low levels, rate hikes are more powerful if they also create signalling effects that influence expectations directly. In this context, especially compared with the traditional focus on 25 basis-point increments, adjusting the pace of rate hikes is a key tool to signal our determination to fulfil our mandate and keep inflation expectations contained. And moving faster at the start of the hiking cycle clearly conveys our commitment to bring down inflation to our medium-term target. At present, inflation expectations remain relatively well anchored across a range of measures. But there are two reasons why it would be unwise to take this for granted. First, the shock is severely affecting the prices of those consumption items, such as groceries and petrol, that have the greatest influence on households’ inflation expectations. [15] The ECB’s Consumer Expectations Survey shows that, since February this year, both mean and median expectations for inflation three years ahead have risen by around 1 percentage point.