At the external level, the relevance of a long-term external rate rise scenario stands out. At home, the lost dynamism of recent years has reduced the financial strength of firms, eroding the quality of the commercial portfolio in certain economic sectors. Stress tests for the banking system show less capital leeway to confront adverse scenarios. Likewise, issues are arising that should be considered in the analysis of risks threatening financial stability. A normalization of risk aversion in international markets could increase 1  Consumer Price Index excluding food and energy components. 2  credit costs in emerging countries, including Chile. Locally, mitigating the deterioration of the commercial portfolio's quality by demanding greater guarantees rather than making provisions or capital aggravates the vulnerability to systemic events. These risk factors make it possible to appreciate the importance of our coherent macroeconomic policy framework, where fiscal and monetary policy can operate countercyclically and the exchange rate acts as a buffer against external shocks. The need to update banking legislation is also evident, to incorporate modern standards of capitalization and mitigation of systemic and cyclical risks, as well as to have good systems of consolidated debt information, all of which are part of the legislative agenda now being discussed at the National Congress. The Monetary Policy Report Headline inflation has been more volatile in recent months, accumulating a negative surprise that placed it at 1.9% in October, close to 0.4 percentage points below the September forecast. The CPIEFE has evolved in line with projections although with significant ups and downs.

In particular, because even though expectations have improved in general, they have done so by anticipating a better future economic performance rather than by current results. In this context, we have held the Monetary Policy Rate (MPR) at 2.5% since May and we expect that, if the baseline scenario comes true, we will keep the monetary impulse near its current levels, to begin withdrawing it only once the economy begins to close the activity gap. Anyway, it is important to carefully monitor any downward deviations of inflation in the short term, because in the context of a weak economy, low inflation and some measures of medium-term inflation expectations remaining somewhat below 3%, the convergence of inflation could be affected, in which case it would be necessary to make the already expansionary monetary policy more so. The financial conditions have helped to shape the macroeconomic scenario described above. Borrowing remains accessible and inexpensive, in line with the orientation of monetary policy. The local financial market has seen no major disruptive events and the internal and external payment systems have functioned normally. Non-financial companies maintain their levels of profitability and indebtedness, while the increase in household debt is concentrated in mortgage credit, which covers long periods, at fixed rates and with a prudent loan-to-value ratio, which keeps the financial burden fairly constant. For its part, in the residential real estate sector, sales of new homes stabilized and prices continued to rise, albeit modestly. Nonetheless, some financial risks identified in past reports are still important.