Also that the domestic economy has continued to grow strongly, which is reflected in our GDP growth range for this year that we have revised upward from December. The tensions we saw at the end of last year in external financial markets have eased, thanks to a combination of facts. On one hand, the provision of three-year loans by the European Central Bank helped to alleviate banks’ liquidity and sovereign debt problems. On the other hand, the second rescue package for Greece and the debt swap with the private sector warded off the possibility of a disorderly outcome there. And somewhat better output and employment indicators for the U.S. have been disclosed. Thus, the markets’ volatility decreased, risk and liquidity spreads fell, the dollar depreciated in international markets, while asset prices rose, and so did commodity prices. All considered, the risks in the external scenario, although more limited, are still significant. The economies of peripheral Europe need substantial funding this year and next. The governments must implement large fiscal adjustments, which in practice may encounter increasing political and social resistance, the same as the financing of new rescue packages in the surplus economies in the region. The economic, social and political costs are paid in the short term and may create tensions, while its fruits can only be reaped in the medium term. Furthermore, the banking system is facing capitalization challenges that may curtail credit to the private sector. Rigidities of exchange rates and wages delay the resolution of competitiveness problems in some economies.

Now there is also the worsening of geopolitical tensions surrounding Iran which could significantly affect the oil price, with negative effects on world growth and stronger pressures on inflation. In Chile, the persistence of strong domestic spending may alter the baseline scenario in two ways. On one hand, it may intensify the inflationary risks now perceived, and increase the propagation of supply-side shocks, like those in oil or fresh fruits & vegetables. It is also possible that the velocity at which core inflation has increased is associated with tighter output gaps than assumed in the baseline scenario. On the other hand, the sustained growth in domestic demand may trigger a widening of the current account deficit and amplify the effects of shocks from abroad on the Chilean economy, especially if accompanied by a falling copper price. Let me share with you some final thoughts. Final thoughts The macroeconomic environment just described has opposing effects, as there are significant risks from different fronts. As I said, the baseline scenario uses as a working assumption that the MPR will follow a path comparable to the one that can be derived from the prices of financial assets observed at the statistical cutoff of this Report. Any deviations away from this trajectory will depend on the implications of domestic and external macroeconomic developments on the inflation outlook. As I also said at the beginning, while risks for short-term inflation have increased, the risks from abroad are still important and may cause significant damage to the Chilean economy.