Prasarn Trairatvorakul: Navigating through volatility with long-term focus Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Association of International Banks (AIB) Dinner Speaker Series, Bangkok, 29 July 2013. *  *  *  Excellencies, distinguished guests, ladies and gentlemen, I would like to thank the Association of International Banks for inviting me to give a talk this evening. It is my honor and pleasure to be here for the prominent institution that has its presence in Thailand since 1996. The association’s work and efforts have contributed significantly towards the strength of the Thai banking system as well as economic prosperity here in this country. For this special evening, I would like to share with you my views on the recent economic and financial challenges, as well as the Bank of Thailand’s role in safeguarding economic and financial stability. Navigating through volatility Over the past few years, we have gone through many economic surprises. Last year alone the Thai economy had to face several challenges, both inside and outside Thailand – recovering from the devastating floods and coping with fragile global economy. And just a few months ago we only just started talking about a pick-up in global growth, driven mainly by robust demand in emerging markets. Today, circumstances have changed, and we are facing with unexpected slowdown in emerging markets as well as the prospect of Fed QE tapering. As far as global economic environment is concerned, I think we are going to see a lot more surprises.
That of course is cold comfort to the manufacturing businesses that were most affected, and to the regions - including the North West, where there is a relatively high concentration of manufacturing business. And you were severely affected last year too by the impact of Foot and Mouth Disease on agriculture and tourism. The frustrating thing for us has been that there was very little that we at the Bank could do through monetary policy - or indeed that the Government could do - to address the problems at source. That’s fairly obvious when we’re talking about the weakening of demand in the other major economies. Some people have suggested that we might have done more to weaken the exchange rate particularly against the generally weak euro - by cutting our interest rates more aggressively, but it really isn’t as simple as that: exchange rates don’t respond predictably to relative interest rates certainly in the short term; if anything in recent conditions cutting them further could even have had a perverse effect. What we were able to do, given that inflation was under control, by cutting interest rates as we did last year, was to try to compensate for the external weakness by stimulating domestic demand growth here in the UK. Given the weakness of business confidence, and therefore investment, reflecting the external pressures, that meant essentially stimulating consumer demand.