In light of this, businessmen and the press started to become concerned about the potentially higher unemployment, which exacerbated confidence further. Turning to economic stability, inflation pressure has dissipated starting August 2008. Headline and core inflation rates, which were at 9.2 and 3.7 percent respectively at their peaks in July 2008, fell to 0.4 and 1.8 percent at the end of the year. As for the financial sector, our banking system is healthy in terms of profitability and capital base. I will return to touch on the financial sector later on. Economic stability on the external front is also very strong. For 2008, the current account recorded a small deficit of 0.2 billion US dollar. Our international reserves amounted to 111 billion US dollar, which is 4 times of short-term external debt. The exchange rate remains competitive and stable. For 2008, the capital account recorded an overall surplus of 12.8 billion US dollar, of which foreign direct investment or FDI was 9.9 billion US dollar. FDI from Europe accounted for about 11 percent of total FDI. Excellencies, For the prospect of the Thai economy this year, the Bank of Thailand sees a growth rate of 02.0 percent and 2.0-4.0 percent next year. I wish to emphasize that the growth performance depends not only on how fast the global economy recovers, but also on how fast confidence within the country could possibly pick up, which will help ensure the recovery of domestic demand.
If inflation looks likely to exceed the Bank’s target limits in a long-term perspective, the Bank will raise its policy interest rate, or cut this rate if inflation is heading below the target limit. In preparing its inflation forecasts and regular assessment of the economic situation and outlook, the Central Bank examines a wide variety of indicators. These include both statistical data and information  BIS Review 12/2003  1  obtained from interviews with representatives of industry, special interest groups, credit institutions and others. Much of this statistical data is available on the Bank’s website. Decisions by the Central Bank’s Board of Governors are made following in-depth examination of these indicators, based on the Bank’s evaluation of the situation and prospects, the premises behind the inflation forecast and the inflation forecast itself. In accordance with the provisions of the Act which entered into force in the spring of 2001, the Board adopted internal rules on the preparation of, arguments for and presentation of its monetary policy decisions. The rules were formally approved at the beginning of 2002 and published in the quarterly Monetary Bulletin. The inflation target adopted in March 2001 removed the earlier fluctuation bands set for the ISK exchange rate and the exchange rate was floated. The new monetary policy framework was introduced under rather difficult conditions, with a sliding exchange rate and mounting inflation. It is fair to say that the tight monetary stance is the main reason that inflation receded as sharply as it did in 2002.