Monetary policy was traditionally passive. Control over the rate of credit extension was the primary means for supporting growth, maintaining price stability, and monitoring the balance of payments. Interest rates were allowed to adjust to the rate of credit expansion and were very much affected by international rates as a result of the Thai open economy. Low returns tended to discourage private savings and encourage high demand for consumer goods.
Domestic prices also were largely determined by world price movements as a result of the country’s open economy and minimal domestic price controls. In fact the oil price increases in the early 1970s caused inflation to rise from 4.8 percent in 1972 to 24.3 percent in 1974. The deceleration of world prices in the early 1980s caused domestic inflation to decline from 13 percent in 1981 to 5 percent in 1982. Measuring by the price indexes, with 1972 as a base of 100, price increase was less for agricultural products, going from 130.2 in 1973 to 227.7 in 1983 compared with 115.7 to 276.3 for nonagricultural products. The highest increase among agricultural goods was for forest products, which went from 122.9 to 403.2 during the same period. Among nonagricultural goods, mining and quarrying showed the highest increases. The consumer price index, taking 1976 as the base of 100, showed the highest increase in transportation prices with 231.2 in 1982, while the rest of the consumption basket had an increase of about 180 between 1976 and 1982. The Bangkok metropolitan area had the highest increase with 194 in 1983, compared with 188.4 for the Northeast region, 181.6 for the Center, 180 for the North, and 178.4 for the South (these being Thailand’s four geographic regions).