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.
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.
- Need to keep inflation under control.
- Inflation harms purchasing power of households and hurts businesses, which in turn can put a drag on consumption and overall economic activities.
- 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.
- Need to ensure that the financial system continues to function well to perform its intermediary role and continue to provide support the recovery.