In a recent Financial Times comment, Michael Woodford of Columbia University discussed how greater clarity in policy communications would help.9 As I see it, current financial conditions are more restrictive than I favor, because households, businesses, and markets place too much weight on the possibility that Fed policy will turn restrictive in the near to medium term. The FOMC’s announcement in August that it anticipates short-term rates remaining low through mid-2013 was certainly a step in the right direction, because it significantly raised the hurdle for early policy tightening. However, I think our dual mandate responsibilities and the strong impediments of the financial crisis argue for a more aggressive approach. One way to provide more accommodation would be to make a simple conditional statement of policy accommodation relative to our dual mandate responsibilities. The goal would be to enhance economic growth and employment while maintaining disciplined inflation performance. This conditionality could be conveyed by stating that we would hold the federal funds rate at extraordinarily low levels until the unemployment rate falls substantially, say from its current level of 9.1% to 7.5% or even 7%, as long as medium-term inflation stayed below 3%. With regard to the inflation marker, we have already experienced unduly low inflation of 1%; so against an objective of 2 percent, 3 percent inflation would be an equivalent policy loss to what we have already experienced. On the unemployment marker, a decline to 7.5% would be quite helpful.
Costs of cross-border financial transactions remain high, and there is limited usage of regional currencies for cross border transactions. There is also limited presence and penetration of regional banks in each country. In this regard, I see many opportunities for Asian banks to play increasing roles in connecting businesses within our region. Enhanced regional financial connectivity will not only support trade and investment activities, but can also promote productivity, immunity, and financial inclusivity in Asia. I therefore welcome and fully support AFCA in its endeavor to promote greater financial cooperation. This forum will help ensure that our region can reap the full benefits of increased financial connectivity. Greater regional economic integration can then reach its full potential and harness the dynamism of this region for sustained shared benefits. Currently, the Bank of Thailand has placed much emphasis on strengthening financial connectivity within the region, particularly with ASEAN-5 and our neighbouring CLMV. Let me highlight our two projects that have strong potential to connect people and businesses in the region more efficiently by providing better access, wider choices, and lower costs of financial services.     First, ASEAN central banks are working towards achieving the goals of the ASEAN Banking Integration Framework. For example, the opening of Qualified ASEAN Banks or QABs would establish important cross-border banking networks, which will help increase efficiency of financial services across the region. At present, the Bank of Thailand is in the process of negotiating QAB agreements with the authorities of Malaysia, Myanmar, Indonesia, and the Philippines.