Prasarn Trairatvorakul: Bank of Thailand’s policy direction in 2013 Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Bank of Thailand, Bangkok, 22 January 2013. *  *  *  Honourable guests and members of the press, Thank you all for attending this annual event, in which I would like to outline the Bank of Thailand (BOT)’s policy direction in 2013. Throughout history, our country might at times be faced with economic challenges and obstacles of different nature and severity, but the BOT’s mission and resolve to safeguard Thailand’s economic and financial stability has remained unchanged since its birth over 70 years go. Today our country is moving into an era of ever-closer linkages, whose scope extends well beyond the technology and communication dimension. It involves regional economic integration, not least among neighbouring countries or what is collectively known as the CLMV area. Within our country itself, the volume of cross-provincial trade and the number of SMEs outside the capital have grown, suggesting that growth has been increasingly inclusive. On the other hand, the greater economic interdependence brought about by closer trade and financial integration could also be a source of systemic risk, if an imbalance, however small, was allowed to develop unchecked. The BOT, as one of the nation’s key policy makers, strives to foster a sound and stable economic environment that enables the private sector not only to grow, but also to retain sufficient resilience and flexibility to withstand competition and uncertainties.
The impact of the second minimum wage hike on inflation is expected to be limited, as most businesses manage to keep a lid on cost via increased production efficiency, encouraged in part by a highly competitive goods market. The BOT will however continue to closely monitor any inflationary impact of the wage increase. Policy challenges for 2013 While it may seem that the worst is behind us, one must continue to be vigilant of risks. It is crucial for policy to be forward-looking and proactive, quickly adjusting to changing environment and shifting challenges. As I have mentioned, the key immediate challenges is to preserve the right balance of policy mix, in order to ensure that each policy’s effectiveness is maximized and grounded on the basis of sustainable economic well-being, as well as safe and sound financial system. Toward these goals, the BOT has a number of functions to perform. Monetary policy and exchange rate policy The overriding objective of monetary policy continues to be the safeguarding of economic stability, which encompasses the dimensions of growth, inflation, and financial stability. This year, a key challenge will be in striking the right balance between providing sufficient support to growth while ensuring that financial stability is also preserved. In particular, a prolonged accommodative monetary policy may pose risks to financial stability if it  2  BIS central bankers’ speeches  encourages excessive debt accumulation, or induces overinvestment in risky assets as investors search for higher yields.