Development of the Monetary Policy Framework in Thailand

1942	The Second World War	The Bank of Thailand Act, B.E 2485 (1942) empowered the Bank of Thailand to conduct the business of central banking and other duties as specified by the Royal Decree under the Bank of Thailand Act. Although the Act did not specify the details regarding monetary policy, it did give the power to the Board of Directors to determine the Bank Rate which was the interest rate under the Bank of Thailand’s lender of last resort facility for financial institutions. In addition, the Act empowered the Bank of Thailand to buy and sell debt securities and foreign currencies and extend credits to financial institutions against eligible collateral, all of which the Bank of Thailand cannot seek profit. Ultimately, the Act indirectly provided the tools necessary for the Bank of Thailand to conduct monetary policy.


	1^st regime Pegged Exchange Rate	The pegged exchange rate regime was first adopted after the Second World War from November 1984 until June 1997. The value of the baht was initially pegged to gold, then to a major currency, and finally to a basket of currencies. During this period, the Exchange Equalization Fund (EEF) announced and defended the value of the baht against the US dollar daily. Given the environment at that time, the pegged exchange rate was deemed the most suitable to support sustainable economic growth.
1997
	2^nd regime Monetary Targeting	After transitioning from the pegged exchange rate to the managed float exchange rate system on 2 July 1997, Thailand received financial assistance from the International Monetary Fund (IMF) and adopted the monetary targeting regime in accordance with the conditions of the IMF loan program. The regime helped to ensure economic consistency among monetary policy, fiscal policy, capital flows from the external sector, and the balance of payments to reach the ultimate objectives of sustainable growth and price stability. The Bank of Thailand would assess economic conditions and set the daily and quarterly monetary base target, on which its daily liquidity management was based. Daily liquidity management was essentially aimed to ensure against excessive volatility in interest rates and liquidity in the financial system.
2000
	3^rd regime Flexible Inflation Targeting	The Bank of Thailand revisited various factors in the financial system, both in the present and in the future, and assessed that monetary targeting became less effective due to the unstable relationship between money supply and economic growth. After the exit from the IMF loan program, it became necessary for the Bank of Thailand to determine a new policy anchor that would be suitable for Thailand. The Bank of Thailand later announced the flexible inflation targeting framework in the year 2000, which would help to build up central bank credibility and support sustainable and full-potential economic growth.
Present

Under the flexible inflation targeting framework, the Bank of Thailand appointed the first Monetary Policy Committee (MPC) on 5 April 2000 initially comprised of 9 total members. The members included distinguished experts from outside and the top management of the Bank of Thailand. The MPC had the authority to determine the monetary policy stance and developed a flexible inflation target range suitable for Thailand.

Later, the new Bank of Thailand Act, B.E. 2551 (2008) was enacted on 3 March 2008. The new Act determined the MPC to be comprised of 7 total members: 4 external members and 3 internal members. In addition, the Act also clearly specified the MPC’s purposes, objectives, and responsibilities.