As for households, despite a reported rise in household debt by the National Statistical Office, the current level of household debt in Thailand is still much lower than average levels of both industrial and regional economies. While the Thai household debt to GDP ratio stands at 33 percent, the corresponding figures for Australia, Singapore and South Korea are 84, 85, and 63 percent respectively. If we look at the components of household debt, we see that mortgage loans increased by a reasonable rate of 15 percent, while we see an increase of over 30 percent in credit cards loans. Therefore, as a precaution, the Bank of Thailand has implemented a number of prudential measures to curb possible build-up of imbalances in the credit card loans. In November 2002, we have raised the minimum income levels for credit card qualification. And later on in April 2004 we have raised the rate  2  BIS Review 58/2004  of minimum monthly payments from 5 percent to 10 percent. These proactive measures so far have yielded desirable and positive results. Let me now move to the financial sector Stability of Thailand’s financial system, in particular the banking sector, has improved remarkably in the past few years. The 1997 crisis has weakened our financial system. Commercial banks’ returns on assets were persistently negative, and NPLs stood at a record high level. Since 2001, the Bank of Thailand has tackled these problems in two steps.
The History of Inflation Targeting Before I look forward, it’s worth looking back and highlighting that it’s now 30 years since the inception of inflation targeting. In 1989, the central bank of the small country of New Zealand announced that the main objective of its monetary policy was to target the inflation rate.1 In the subsequent decades, most central banks in major economies coalesced around this approach of aiming for a low, publicly announced inflation rate. For the past three decades, this approach has been remarkably successful at keeping inflation low and stable.2 The inflation targets have acted as a nominal anchor for inflation expectations, which play a big role in determining actual inflation. For anyone who was trying to get a mortgage at a double-digit interest rate or seeing prices go up and up back in the days of high inflation, it’s almost unthinkable that in 2020 central banks are pondering the opposite challenge: how to prevent inflation from being too low. But it’s the reality most policymakers face, and the one our monetary policy frameworks will need to grapple with long into the future. The Future of Inflation So, how did we arrive where we are today? Why is low inflation the current challenge, and why will that likely persist? 1/4  BIS central bankers' speeches  To answer these questions, we need to look at r-star, or the longer-run neutral rate of interest.