The ECB also helps to accompany the fundamental change in the financial sector by changing the market structure and infrastructure, e.g. by actively supporting the Legal Entity Identifier (LEI) initiative as well as enforcing financial integration via the Eurosystem’s TARGET2-Securities (T2S) project, which will make cross-border settlement identical to domestic settlement and hence the whole European securities market will become more attractive and cost effective. Financial regulation and transparency I will now expand on this morning’s discussion on “Making markets work: liquidity and regulation”. Apart from central bank and market initiatives, a number of measures in the field of financial regulation, which are intended to prevent another crisis on the scale of the one we have just witnessed, have been decided upon or initiated by various authorities. Such measures contribute to structural changes in the institutional set-up of financial markets and are expected to restore market confidence and, ultimately, to support growth. Yet the intended positive effects of regulatory measures have to be carefully weighed against their costs and unintended side effects. Market participants point out that the regulatory measures must be consistent with one another. The speed of regulatory innovation should not mean that too little consideration is given to the impact one measure will have when taken in conjunction with others. Also, consistency on the international level has to be ensured. Very importantly, financial regulations should be designed and implemented carefully in order to avoid potentially adverse effects on market liquidity and price formation.
And as a result, inflation and its second round effects have been well contained. Headline inflation came down from a peak of 6 percent in the second quarter, to 3.3 percent in the last quarter, and to 3 percent in January this year. Meanwhile, external stability continues to improve, with current account turning into surplus, and a strengthening of international reserves to almost 67 billion US dollars. The economy proved to be quite resilient to external shocks. And growth momentum continued satisfactorily at 5.1 percent for the whole of last year. But most of you are probably more concerned about prospects for this year and the next. This is understandable. This year, the economy will continue to face a number of important challenges. Economic uncertainty has increased, as evidenced by declining investor sentiment and consumer confidence. Outside Thailand, the threat of a disorderly unwinding of global imbalances still persists. At home, the implementation of the reserve requirement and the introduction of the amended Foreign Business Act turned out to be unpleasant surprises to investors and the global community. And on top of all these, political uncertainty remains a material factor in the private sector's decision to invest. The concern that some of you may have is: Can Thailand weather all these challenges well? Are we turning our back on globalization? A confluence of events in the past few months does appear to present a cause for concern.