The MPC generally agrees on the overall economic outlook and areas of challenges, although views about the balance of risks and the appropriate policy response can differ. My discussion today should therefore be taken as a representation of my own view as an MPC member, and needs not reflect the opinions of all other voting members. Economic outlook Ladies and Gentlemen, Last year was in many ways a year of transition. The economy had to recover from the devastating floods that took a heavy toll in late 2011, and at the same time deal with the fragile global economy. Throughout the year, incoming economic data have nonetheless been a series of positive surprises. The recovery gradually gained traction and became increasingly self-sustaining. Production constraints eased and domestic demand was back on track, thanks to the economy’s sound underlying fundamentals. Meanwhile, monetary policy continued to be accommodative and supportive to growth. Fiscal spending through flood-relief and stimulus measures also played an important role in providing a boost to the economy. As a consequence, the Thai economy was able to sail through those strong headwinds, and grew robustly at 6.4 percent in 2012. Projecting forward, the outlook for this year continues to be positive, supported by domestic demand that should remain robust. The underlying economic fundamentals also continue to be favourable. The banking system is underpinned by solid capital base, prudent risk management practice, and strong risk-based supervision.
Indeed, estimates from both the International Monetary Fund and various investment banks suggest that the current value of Thai baht is consistent with the underlying fundamentals. To promote a deeper foreign exchange market and foster more balanced capital flows, the Bank of Thailand also launched a Capital Account Liberalization Master Plan, which entailed liberalization of Thai investment abroad and a streamline of foreign exchange regulations. There are also continuing efforts to enhance the private sectors’ adaptability and foreign exchange risk management. These initiatives should provide an extra layer of cushion to shield businesses against short-term market volatility. They are not, however, a substitute for structural improvement in productivity, which in the long run holds the key to success for the export industry. Given that the global environment is still subject to uncertainty, capital flows may continue to be volatile, and risks to financial stability warrant close monitoring, it is more important than ever that monetary policy strikes the right balance between providing support to sustain growth momentum while ensuring long-term financial stability. In the judgment of MPC, the current stance of monetary policy remains accommodative, with the real policy rate still in negative territory. As the balance of risks shifts between the need to support growth and the duty to safeguard financial and price stability, monetary policy stance will have to be adjusted accordingly. The Bank of Thailand stands ready to employ the right mix of policy tools under its purview to attain these goals.