This scenario would imply a lower external stimulus to our economy and increased volatility in international financial markets in the short term, but at the same time it contained some positive elements such as recovering growth in developed economies and more normal international interest rates, which would help achieve a more sustainable global economy in the medium term. In recent months, the world has continued to advance towards a more balanced situation, but it has also unveiled some of the risks we pointed out last July. Some countries have been more volatile in this transition, as reflected in strong devaluations of their currencies, higher interest rates, downward adjustments in growth expectations and capital outflows (figure 1). The list includes some of the biggest emerging economies like Brazil, India, Indonesia, Turkey and South Africa. This reflects a combination of a lower monetary stimulus expected in the U.S. with the vulnerabilities that were created in previous years in some emerging economies. The latter include greater reliance on external funding, currency mismatches, fiscal imbalances, rapid growth in domestic credit and relatively high inflation rates. These shortcomings mean less room to maneuver economic policies to compensate for the deterioration in the external scenario. Several economies that had intervened very actively to prevent exchange rate appreciations have begun to act now to curb the depreciation of their currencies. Brazil, for example, announced an intervention amounting to 60 billion dollars by the end of the year, while India has introduced capital controls to grapple with the sharp fall in the rupee.

All of this points at more favorable current-account balances in the medium term. Anyway, for the purposes of assessing this risk we also need to review the evolution of the deficit measured at trend prices. In this sense, news is pointing in the right direction, because the estimate for this year went from 5.7% of GDP last March, to 4.9% in this Report. We estimate that in 2014 it will continue to recede to 4.6% of GDP. The international economy is undergoing a normalization process that influences the Chilean economy. This means a lower external impulse, with more balanced world growth between developed and emerging economies, terms of trade approaching their long-term level and global financial conditions more in line with historic patterns. A smaller boost from foreign investment is also to be expected – especially in mining –, which will take pressure off the current-account deficit and the use of internal resources. Monetary policy is well equipped, if so required, to back this adjustment process. The Board follows closely the evolution of the external and domestic macroeconomic scenario and its implications on inflation, and reaffirms its commitment to conduct monetary policy so that projected inflation stands at 3% over the policy horizon. I would like to end by sharing with you some final thoughts. Final thoughts We have been 19 months with the same monetary policy interest rate. And as with the exchange rate, during this time we have received the most diverse recommendations and suggestions from the market.