Most central banks have continued and/or accelerated their interest rate hikes, with the Fed's actions standing out. This has further tightened financial conditions, especially for emerging economies. Overall, risk aversion has increased, affecting asset prices and volatility in global financial markets. Risk premiums have increased: Higher CDS spreads across LATAM and other EMEs as well as higher interest rates. Higher market volatility: Option implied volatilities have increased during this calendar year, both in the US stock and bond markets. The tightening in global financial conditions is also apparent domestically. In the case of Chile, we have had a persistently weak exchange rate along with high 2 FX and interest rate volatility. During this year, the CLP has depreciated 15% and long-term interest rates (BCU10) increased 26bps. In contrast to pre-2019 situation when Chile ranked low in long term interest rate volatility. Additionally, non-residents have turned more sensitive to local events and have reduced their exposure to fixed income securities. The very recent days show a change in tone, both in Chile and abroad, thanks toe positive developments on inflation. But we must remain wary. The greater volatility of the FX rate and local interest rates occurs in a context of a shallower capital market, with a reduced ability to stabilize external shocks and a higher than historical uncertainty. In this environment, financial stability becomes even  1/3  BIS - Central bankers' speeches  more relevant, as doesthe need to keep up our efforts to restore the Chilean financial market and its shock-absorbency capacity.

Inflation has reached decades-long records due to the significant increase in spending during 2021, world price hikes, and problems in global supply chains. The Central Bank of Chile started its monetary policy response early in 2021 and is taking every measure necessary to bring down inflation. Local authorities have continued to work towards the consolidation of a financial stability and macroprudential framework. On financial stability policy, the mandate of the BCCh includes ensuring the normal functioning of internal and external payments systems, including the role of lender of last resort to the banking system. This gives the BCCh a broad interest in the stability of the overall financial system. Through its semiannual Financial Stability Report, BCCh identifies, monitors and reports on risks and vulnerabilities within the financial system, from a macroprudential perspective. The BCCh took the very first steps into the financial stability territory back in the early 2000s. The first Financial Stability Review of the BCCh was released in 2004, a report that contains a systemic risk assessment and analysis that provides valuable information to all participants in the local financial market, including regulators and other authorities. Thus, during the last two decades, the BCCh has consolidated its financial stability role. In turn, the CMF mandate is to safeguard the proper functioning, development and stability of the financial market, supervising banks, their subsidiaries, the 3 large saving and credit cooperatives, credit card issuers, insurance companies, securities issuers; fund managers; brokers; and financial market infrastructures. Strong coordination is required among financial authorities to preserve financial stability.