Bank of Thailand’s Inflation Targeting: Recent Performance and Future Challenges

Veerathai Santiprabhob ()
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Veerathai Santiprabhob: Siam Commercial Bank Public Company Limited

No 2001-03, Working Papers from Monetary Policy Group, Bank of Thailand

Abstract: This paper reviews Bank of Thailand (BOT)’s policy stance and performance since its official adoption of inflation targeting in May 2000. The paper argues that the BOT had established a credible inflation targeting framework. Core inflation had persistently turned out below the midpoint of the BOT’s target range, and bond yield curves had not reflected any evidence of inflation expectation. However, the BOT had been very passive in responding to adverse external shocks. Looking forward, the paper asks whether the BOT could be more accommodative to growth, while keeping core inflation within its target range, by lowering its policy benchmark interest rate. To avoid potential policy constraints in the long term, the paper argues that the BOT, together with the government, needs to (1) establish necessary legal and institutional foundation for inflation targeting; (2) ensure that fiscal discipline is maintained and FIDF’s contingent liabilities are managed in a transparent and accountable manner; and (3) press on with financial sector restructuring. The paper also raises a number of policy-related questions in which the BOT may wish to explain to the public in further details.

Pages: 23 pages
Date: 2001-06
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