Thanks to the Chinese leadership, the spirit of connectivity and cooperation is further enhanced through the One Belt One Road initiative. The Asian Infrastructure Investment Bank (AIIB) is an added funding impetus to ensure that there will be physical infrastructure connectivity, laying the strong foundation for shared economic prosperity. China’s growing economic ties with Thailand and ASEAN have become stronger in many aspects. China has been the largest trading partner of Thailand since 2013. Thanks to the China-ASEAN FTA, China has been ASEAN’s largest trading partner since 20092, while ASEAN has been the third-largest trading partner of China since 20113. China has been one of Thailand’s top foreign investors for the past nine years4. And in terms of tourism, almost AFCA follows the philosophy of openness and inclusiveness as well as the mission of “connectivity, cooperation, joint governance, and shared benefits” 2 ASEAN Secretariat: ASEAN Trade Balance (in $ Million) by Country. 3 World Bank: China Trade at a glance. http://wits.worldbank.org/CountrySnapshot/en/CHN 4 Foreign Direct Investment Position Classified by Country $ Combining Hong Kong and China FDI values. BOT. 1  1  nine million Chinese tourists visited Thailand last year, the highest number from any country in the world. It is clear that trade and investment connectivity between China and ASEAN have been well established and have great potential to expand much further. However, financial connectivity in our region has yet to catch up with trade and investment connectivity.
If there are adverse side-effects, then an alternative drug can be called upon – macro-prudential policies. These are an important new addition to the central bank armoury. When risks are localised – say in the UK housing market – macro-prudential measures can act like a targeted lightning strike. The Bank’s Financial Policy Committee (FPC) is discussing these risks. I will not, tonight, steal their lightning. But if risk-taking becomes broadly-based, a broadly-based response may at some stage be appropriate – a rumble of thunder rather than a strike of lightning. The case for doing so is stronger, the greater the chances of an asymmetric asset price response – a sharp snapback in volatility and asset prices – which could imperil recovery.9 The MPC’s guidance gives monetary policy a role as a last line of defence if macro-prudential actions cannot contain these risks. As they evolve, the MPC and FPC will need to assess these risks carefully. The monetary policy stance Faced with these uncertainties, what would be a prudent course for monetary policy in the period ahead? The first thing to say is that there is consensus across the MPC on three key elements of our monetary strategy: that any rate rise need not be immediate, that when rate rises come they are intended to be gradual and that interest rates in the medium-term are likely to be somewhat lower than their historical average. This message appears to have largely been understood by financial markets.