Sethaput Suthiwartnarueput: Normalizing policy to ensure a smooth take-off

Speech by Dr Sethaput Suthiwartnarueput, Governor of the Bank of Thailand, from Thailand Focus 2022 "The new hope", The Stock Exchange of Thailand (SET), Bangkok, 24 August 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Focus on 3 questions:  

1) What do we need for a smooth take-off?
(2) How do we get there?
(3) What is our rationale for monetary policy normalization?
What should we really be worried about?     

Part 1: What do we need for a smooth take-off?

Our policy objective has been and continues to be trying to ensure a smooth take-off. For Thailand, this objective is different from that in industrial economies because the stages of recovery are different. Therefore, the policy response is also different. What is needed to achieve a smooth take-off? We need to keep inflation under control and ensure that the financial system continues to function well.

1. Need to keep inflation under control.
   1. Inflation harms purchasing power of households and hurts businesses, which in turn can put a drag on consumption and overall economic activities.
   2. High and persistent inflation may become entrenched if households and businesses expect inflation to remain high for long periods. A shift towards a higher and less well-anchored inflation regime must be prevented because in such a regime, high inflation expectations generate broader cost pass-through that act to keep inflation persistently high in a self-fulfilling manner. In such situations, inflation can also become more sensitive to relative price shocks including large depreciation in exchange rate and wage adjustment.
2. Need to ensure that the financial system continues to function well to perform its intermediary role and continue to provide support the recovery.