Title: Monetary Policy in Thailand Amara Sriphayak The Bank of Thailand amarasbot'or'th
1Monetary Policy in ThailandAmara Sriphayak The
Bank of Thailandamaras_at_bot.or.th
2OUTLINES
- General Principles
- Past Monetary Policy Implementation
- The Implementation of Inflation Targeting
Framework in Thailand - Economic Assessments and Outlook(As of July
2002)
3General Principles
Transparency
To Build Credibility
Accountability
Independence
4General Principles
Sustainable economic growth
Price stability
Monetary Policy
5Conduct of Monetary Policy
- reserve requirements
- OMOs (repo and outright transactions,
- FX swaps)
- - standing facilities
Instrument(s)
Implementation
Operational Target
- policy interest rate
- inflation forecast- exchange rate- money
supply
Intermediate Target
Strategy
- price stability - long-term growth
Ultimate Target
6Past Monetary Policy Implementation
- Peg Exchange Rate Regime Second World War-June
1997
- Floating Exchange Rate Regime Monetary
Targeting July 1997-April 2000
7Why monetary policy should be revised?
- Switch to a floating exchange rate regime
- Rapidly changing world economic and financial
environment - Growing public awareness of information and news
- Past monetary policy framework was not clear,
appropriate, and consistent with stable,
long-term development of the country
8Current Framework Inflation Targeting
- Policy target 0-3.5 quarterly average core
inflation rate - Policy instrument 14-day repurchase rate
- Responsibility Monetary Policy Committee (MPC)
- Forecast and policy tool Macroeconomic model
9Policy
- Policy goals
- Price stability is the overriding objective, in
support of sustainable long-term growth - Policy widely understood and agreed upon
- Clear, credible, and consistent
- Cooperation and regular consultation between BOT
and the government (under new BOT Act)
10People
- Policymakers
- Monetary Policy Committee (MPC), consisting of 7
members (including the Governor as Chairman) and
2 external advisers - MPC meets every 6 weeks with pre-announced
schedule - Independent and accountable
11Policy Formulation Process
12A Suite of Models
Core Model
13Transmission Mechanism of Monetary Policy
Time Horizon (8 Quarters)
14Performance
- Track record
- Core inflation remaining within target range of
0-3.5 since adoption of IT framework - Perhaps too early to judge
- Target easily influenced by internal and external
factors (e.g. oil price fluctuations, fiscal
changes)
15Core and headline inflation
Annual percentage change
Core inflation target range
Core inflation1/
3.5
0
Headline inflation
1999 2000
2001 2002
1/Consumer price index excluding raw food and
energy items
Source Trade and Economic Index Bureau, Ministry
of Commerce
16Preparation
- Market expectations
- Preparation of the market prior to interest rate
decisions - Foreign exchange and capital markets affect
transmission of monetary policy - Well-managed expectations can reduce volatilities
17Government Bond Yields
Per cent
R/P1day
3-month
Maturity (year)
Source Bank of Thailand
18Presentation
- Communications policy
- MPC press conference after each meeting
- Quarterly Inflation Report
- Monetary policy information dissemination
through - BOT website and publications (http//www.bot.or.th
) - Public symposiums
- Visits to educational and financial institutions
19(No Transcript)
20Inflation Report
- Main objectives
- Promotes public understanding of monetary policy
and other economic issues - Explains and justifies policy decisions
- Reviews recent economic and financial
developments - Presents MPCs assessments of risks and forecasts
of inflation and output growth for 8 quarters
ahead - Provides latest version of macroeconomic model
and sensitivity analyses
21Economic Assessments and Outlook(As of July 2002)
22Economic and Financial Conditions in 2002 H1
- GDP in 2002 Q1 grew by 3.9 per cent year-on-year.
- The economy continued to expand in 2002 Q2 on
both the production and expenditure sides, with
signs of a firm recovery. Export performance
also improved. - Economic stability remained satisfactory. The
external condition strengthened, while inflation
was declining. - The US economy and volatilities in world stock
markets posed greater risks on the external
front, with potential impact on the world economy
and Thai export. - Reduction in NPLs and progress in corporate
restructuring should speed up credit extension.
Resolution to FIDFs losses should render a more
effective monetary policy.
23Key Changes in Assumptions from Previous Report
- Positive and higher GDP growth for trading
partners beginning 2002 Q1. - Volatilities in world capital markets create
uncertainties for the US economic recovery
process. The Fed is expected to delay the hike
in interest rates. - Rising world oil and non-fuel commodity prices.
- Unchanged public expenditures but a weaker
stimulus in the second half of fiscal year 2002.
24Growth Forecasts of G3 Industrialized Countries
EU countries including Denmark, Sweden, and
UK. Source Consensus Forecasts
25Growth Forecasts for Asian Region Economies
Source Consensus Forecasts
26Assumptions on Trading Partners GDP
Annual percentage change
As of Jul 02
As of Apr 02
27Assumptions of Fed Funds Rate
Per cent
As of Apr 02
As of Jul 02
28Assumptions on Dubai Oil Price
US / barrel
As of Jul 02
As of Apr 02
29Assumptions on Government Expenditure 1/
Billion baht
As of Jul 02
As of Apr 02
1/ Excluding village fund
30Assessment of Risks
- Negative Side
- Lower-than-expected growth of trading partners
economies. - Higher oil prices than assumed.
- Weaker export prices than projected coupled with
a stronger baht could have an impact on income.
- Positive Side
- Sustained increase in consumer confidence.
- More effective monetary policy transmission,
facilitating adjustments in financial institution
interest rates.
31GDP Growth Forecast
Annual Percentage Change
Q1 Q1 Q1 Q1 Q1 2000 2001 2002 2003 2004
32Probability Distribution of GDP Growth Forecast
73.6
80.6
65.8
87.0
33Core Inflation Forecast
Annual Percentage Change
Q1 Q1 Q1 Q1 Q1 2000 2001 2002 2003 2004
34Probability Distribution of Core Inflation
Forecast
35Summary Forecasts
36GDP Growth Forecasts by Various Research Houses
Source Reuters and NESDB
37Headline Inflation Forecasts by Various Research
Houses
Source Reuters and NESDB
38Monetary Policy Stance in the Past 3 Months
- In the meetings on 3 June and 22 July 2002, the
Monetary Policy Committee decided to maintain the
14-day repurchase rate at 2 per cent per annum. - Reasons
- 3 June Interest rate cuts in December 2001 and
January 2002 were deemed as adequate signals of
the easy monetary policy stance. - 22 July The sustained economic recovery and low
level of inflation continued to be supportive of
an easy monetary policy stance.