In the baseline scenario I will present to you in a moment, we assume that the effects of the external scenario will be limited, and the Chilean economy will grow close to its trend, with inflation near the target. Now I will describe the factors that shape this baseline scenario and the implications of the risks I have mentioned. Macroeconomic scenario In Chile, the dynamism of output and demand moderated further during the second quarter, although somewhat less than had been forecast in June. Inflation, meanwhile, was slightly below expectations of a few months earlier. Headline y-o-y inflation has hovered around 3 percent, while the annual growth rates of core measures remain contained (figure 6). The inflation outlook has been characterized by limited transmission of food prices to the local market. Similarly, the propagation of the price increases of these goods and fuels to other prices has been in line with projections. As I said a while ago, the external scenario has brought important news, with the materialization of some of the risks considered in the last quarters. This, coupled with prospects of slower growth in developed economies and concerns about the debt spreading to Central Europe, has had a significant impact on global financial markets. The sovereign spreads of several Eurozone members, like the premiums of some banks, are in all-time highs (figure 7). Asset prices have seen substantial changes, where worth noting is the decline in interest rates on long-term T-bonds of several developed economies that act as safe havens.

There is no withholding tax on the profit realised from investments in these ringgit denominated bonds. The International Finance Corporation and the International Bank for Reconstruction and Development have since issued their first ever Islamic bond issuances in Malaysia. The total issuance amounted to RM1.3 billion, all of which were over subscribed. A portion of these papers was purchased by non-resident investors, indicating foreign interest in the ringgit denominated instruments. On the availability of credible and timely information, the Malaysian regulatory framework, reinforced with the adoption of best practices, has created an environment of greater transparency and richness in financial market information. The financial regulators provide extensive information about the Malaysian economy and Malaysian financial system, including regulatory requirements. The Bank also has put in place several websites that provide market information on the issues that are available for the market participants. Finally, on the capacity for diversification and risk management in the Islamic financial system, while being relatively small compared to the conventional system, it is expected to expand as the financial system strengthens and as new products are introduced. In the context of this financial infrastructure, the Malaysian Islamic financial system is both robust and fast growing. The market has highly diversified players, with Islamic banks, investment banks, takaful companies, development financial institutions, savings institutions, fund management companies, stock brokers and unit trusts. The Malaysian Islamic financial market has already introduced a variety of Islamic financial hedging instruments, including the Islamic profit rate swap, Islamic cross-currency swap and Islamic forward rate agreement.