I want to share with you this assessment, which can be summarized in three main points. First, economic recovery in the first half of this year is firm, and the momentum is likely to continue in the second half, supported by global economic recovery, accommodative fiscal and monetary policies, as well as the strong momentum of recovery itself. As for the impact of the political turmoil, April and May data clearly suggests that the impact is limited and the collateral consequences will be felt largely in the tourism sector which will take a bit longer to recover. For the whole of this year, we are expecting growth to be higher than the range of 4.3–5.8 percent that we had forecasted earlier in April. So, similar to other economies in the  BIS Review 101/2010  1  region, Thailand should recover firmly this year, and the recovery momentum should carry forward into the next year. Second, with the economy recovering well, inflationary pressure is set to increase going forward, reflecting the impact of stronger domestic spending and also higher commodity and raw material prices in global markets. Also, going forward, pressure on asset prices will become more evident on account of continued capital inflows into the region. Therefore, with pressure on prices edging up and the recovery momentum looking firm, the move to begin policy rate normalization is a logical one for maintaining economic and financial stability. So, the decision today is not a surprise for financial markets, rather it is a decision that is longoverdue.
This seemingly straightforward question actually embeds a good deal of ambiguity and room for potentially manipulative actions. First, it is a hypothetical question – not what rate did you borrow at that morning, but what rate do you think you could borrow at. This potential disconnect from actual borrowing activity builds in from the beginning a certain amount of judgment and room for manipulation. Second, some of the parameters – “reasonable market size” or “just prior to 11 a.m.” – also allow for subjective interpretation. This type of judgment is not inherently a problem, but it does open the door for improper behavior and also makes transgressions more difficult to identify. At the same time, and partly in response to the lessons learned during the financial crisis, patterns of bank funding began to shift away from unsecured funding to secured funding markets. Investors and other market participants grew to prefer holding specific collateral against their loans – even very short-term loans – than just trusting in the ongoing viability of the borrower. This shift had substantive implications for money markets and the LIBOR fixing model, which was based on the assumption that there would always be regular activity in unsecured interbank funding markets. As those markets dried up – in some cases there were essentially no transactions for longer-dated tenors – it became harder for banks to ground their LIBOR submissions in actual, observable transactions. This put a greater premium on a submitter’s judgment, which increased the risk of further abuse and manipulation.