As pointed out in our IEF Report, in the local corporate markets the lower risk premiums have also helped to improve financing conditions, which have been showing sustained improvement since mid-last year and into 2014 to date (figure 6). Despite the lower cost of credit, banking credit has expanded less in recent months, mainly in commercial loans, which relate to the financing of inventories, working capital and fixed assets. Aside from demand-side factors, the Bank Lending Survey shows that credit access conditions have tightened in recent months. The opinions taken from April’s Business Perceptions Report agree with this assessment. In contrast, annual growth in mortgage credit posted a slight increase, which is attributed to the completion of various real estate projects and committed sales. International financial markets look calmer than in the second half of 2013 and early 2014. Thanks to this the stock markets improved, sovereign risk premiums and long-term rates declined, and emerging market currencies appreciated. Why? Because of a number of factors. On one hand, in the U.S. the withdrawal of unconventional stimulus measures has proceeded as expected and the Eurozone has made advances on the fiscal and banking fronts. In the latter, there are also additional monetary measures recently applied to avert a deflation. On the other hand, in China risks are still present affecting the financial system and economic growth. The authorities have announced some focalized fiscal stimulus packages and capital market reforms, and the latest stress tests showed good capital adequacy levels.

It also uses as a working assumption that nominal wages will be adjusted in line with productivity and the inflation target. The baseline scenario also uses as a methodological assumption that the MPR will follow a path comparable to that that can be inferred from the prices of financial assets outstanding at the statistical closing of this Monetary Policy Report (figure 8). The baseline scenario reflects the events that are believed to be more likely to occur with the information at hand at the closing of this Report. However, there are risk scenarios which, if materialized, may reshape the macroeconomic outlook and thus the course of monetary policy. This time, having evaluated the alternative scenarios, the Board believes that the risk balance for both output and inflation, is unbiased. Internationally, the biggest risk continues to be linked to the Chinese economy and its financial system. This risk has significant impact, considering China’s weight in the commodities market, copper included, and its importance in world trade. Besides, one cannot rule out the vulnerabilities in other emerging economies resulting in new episodes of volatility. The risks relating with the United States withdrawing its monetary stimulus programs and the Eurozone’s macro-financial situation have diminished, but are still capable of widening the fluctuations in the global financial markets. In particular, the current context of lower sovereign premiums could trigger a sharper reversal. Still, the improved performance of the U.S. economy would also mean a stronger impulse from abroad. Locally, the main risk has to do with the short-term inflation outlook.