There are two external advisors who serve on the committee, providing independent thoughts and perspectives. The committee meets every six weeks on a pre-announced schedule. The main responsibilities of MPC comprises of: •  setting the direction of the monetary policy with the objective of maintaining price stability,  •  examining and approving the monetary conditions and policy stance report, and,  •  overseeing the quarterly Inflation Report. Why did we adopt and implement inflation targeting as our new policy anchor? As the fixed exchange rate was abandoned after the crisis, it was then necessary to have a new nominal anchor. At first the Bank of Thailand used monetary aggregates as its policy target under the IMF program. The Bank targeted domestic money supply in order to ensure macroeconomic consistency in order to obtain price stability. However, as in many countries in recent years, using money supply as a target did not work well with the Thai economy as the relationship between monetary aggregates and output became increasingly unstable. This was due to changes in people's spending behavior and the popularity of new money-related innovations, such as credit cards and electronic cash cards. After studies and experimental implementation, the Bank of Thailand formally adopted the inflation-targeting regime starting from May 2000. The new nominal anchor allows the Bank of Thailand to set an explicit target of core inflation in order to stabilize price condition. Since its adoption, a target of core inflation had been set at a range of 0-3.5 percent and remains so.
Nevertheless, in the case of Thailand after the crisis, the banking system has not yet been fully functioned and this, to a certain extent, undermined the effectiveness of the monetary policy. The macro-model gives a range of core inflations with probability distribution being described into a fanchart. This fanchart takes into account the related uncertainties and gives some flexibility in a range of forecasts. Based on the most likely outcome, the MPC will announce the expected rate of inflation for this year and next year. According to the most recent assessment, the core inflation will be 0.5-1 percent in 2002 and 0.5-1.5 percent in 2003, providing growth of between 3-4 percent in 2002 and 2003. Finally to enhance transparency of the process, Inflation Report is published on the quarterly basis providing forecasts of inflation and economic growth for the next eight quarters along with the quarterly press release. For the final part of my talk, I would like to dwell on the issues of Central Bank Independence. The first issue is whether a Central Bank can have too much independence in the sense that it can be harmful. To this, I incline to say yes, but only in a rare circumstance. Bad decisions relating to monetary or financial institutions operations can be damaging with wide impact. To prevent this from happening, a mechanism should be installed such as a Monetary Policy Committee or a Financial Institutions Policy Committee comprising of qualified external directors so that important policy measures are made through group decisions.