You were driving, and one of your friends asked you, “When will we make a turn?” If you have a GPS navigator or open up Google Maps, you might be able to say with precision, “In 2.5 kilometers.” When talking about a policy course, the answer might be, “In the next two or three quarters, if things go according to plan.” In real life, we policymakers do not have the luxury of having a GPS navigator, not to mention the fact that this said turn could be moved closer or further away without giving any warnings in this volatile world. What we do have, however, are indicators we observe from our surroundings, and indicators of road conditions and possible storms ahead of us. Similarly, the MPC considers a number of factors when formulating a policy decision—not only the current state of such factors, but also their longer-run trends and expectations of risk scenarios going forward. For a small open economy in an increasingly volatile world, MPC’s decisions will have to be data dependent. In my address to you this morning, I will share with you the factors that the MPC considers when making policy decisions. Since the main objective of a flexible inflation targeting framework is to attain sustainable economic growth while preserving price and financial stability, I am going to take inflation, growth, and financial stability each in turn. 1/5  Ladies and gentlemen, The first factor that the MPC takes into consideration is inflation.
The prolonged period of global low interest rate environment leads to another potential concern: search-for-yield that leads to underpricing of risks. It should be noted that search-for-yield is not uncommon and is all well and good if investors are wellinformed and manage their risks accordingly. However, we cannot deny that some investors are underpricing the associated risks. Debt accumulation among households;  3/5  large expansion of foreign investment funds with high concentration in some emerging economies; saving cooperatives’ growing asset base; maturity mismatch of corporate borrowers; and rapid growth of unrated bonds are some examples of the issues the Bank of Thailand has been monitoring over the years. More recently, we also notice an upward trend in mortgage loans to homebuyers who search for rental yield, driven partly by high LTV ratio for mortgage loans offered by fierce competition in the financial sector. Furthermore, mortgage NPLs, especially among second and third home buyers, have continued to rise. On the regulatory side, the Bank of Thailand continues to monitor warning signs of financial stability risks and address them accordingly. For example, last year, we tightened credit card regulations as well as uncollateralized personal loan limits to mitigate household debt problems. It is also our view that collaborations between various regulatory bodies and market participants are increasingly important for effective risk monitoring and assessment, together with appropriate measures to manage risks that might arise in the future.