Tarisa Watanagase: Searching for a second wind – overcoming shortterm obstacles for long-term prosperity Dinner talk by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Foreign Correspondents Club of Thailand, Bangkok, 24 July 2008. *  *  *  Distinguished FCCT Members and Guests, Ladies and Gentlemen, I would like to begin by thanking members of the FCCT Board, for inviting me to deliver this dinner talk. Today, I am very pleased to have an opportunity to share with you how I see the Thai economy evolving at the moment. The Bank of Thailand relies very much on the press in our communication to the public and this includes foreign correspondents in addition to the domestic ones. Therefore, whether you are aware of it or not, you are our partners in central bank’s public communication process. At the outset, I would like to reaffirm that the Monetary Policy Committee’s collective decision to raise policy rate Wednesday last week was in the best interest of the Thai economy over the medium term. And, my talk today will aim to address two important questions, which everybody may have in his or her mind, on the future prospect of the Thai economy. These questions are first whether the Bank of Thailand’s monetary policy is right for the current economic situation and secondly whether Thailand has the capacity to overcome the numerous challenges and regain dynamism in the near future.
And we have, of course, tried to assess the impact of the dramatic stock market decline from the peaks in 2000 on macroeconomic conditions and financial stability. In this regard, it mattered that, partly linked to the introduction of the euro, the outstanding amount of shares substantially increased in the euro area. For non-financial corporations in the euro area, the annual net issuance of shares increased from 1.7% of GDP in 1995 to 7.3% of GDP in 2000. At the same time, during the late 1990s, the distribution of shares across the euro area population broadened significantly, implying that more households invested in shares in the late 1990s than before. Corrected for valuation effects, the amount of household’s holdings of shares and mutual fund shares increased between 1995 and 2003 by 78%. Against this background, stock prices have become more relevant to economic conditions in the euro area in recent years. And indeed, when stock prices started to fall, we could see that this had a notable dampening effect on the euro area economy in the period 2001-2003. What role do asset prices play in the ECB’s monetary policy? After this description of the current situation, the crucial question is: how do asset price developments enter into the assessment of the outlook for price stability and how they influence the policy-formulation of the ECB. Recently, much attention has been devoted to the question of which monetary policy strategies are optimal in an environment of strong asset price fluctuations.