household income and long-term interest rates) have been exceptionally favorable in the past few quarters. Meanwhile, the profits of small and medium-sized construction enterprises have deteriorated, which could result in an increase in the sector’s payment delays. Finally, the outlook for the supply of new office space remains high by historical standards. The Chilean economy is well positioned to deal with the changing internal and external conditions ahead. Internationally, conditions facing the Chilean economy have been benign for a long time, with high terms of trade and very favorable external financing conditions. At home, the progression of the investment cycle has led to strong growth in employment and spending in a context of contained inflation and neutral ranges for the MPR. Indicators of recent months suggest that external and internal conditions have started to normalize. The adjustments in relative prices, such as the real exchange rate, have gone in the right direction to help the economy to accommodate the new situation, that is, lower terms of trade, and the normalization of domestic demand and external financing conditions. The Board follows the evolution of external and domestic macroeconomic conditions and their implications on inflation closely, and reiterates its commitment to conduct monetary policy so that projected inflation stands at 3% over the policy horizon. Let me finish with some reflections. Final reflections The economic conjuncture always presents challenges to those of us who are in charge of economic policy making. Now we must face a different configuration than what we’ve seen in recent years.

Finally, the baseline scenario uses as a working assumption that, in the short term, the MPR trend will be aligned with market expectations. As I have said time and again, this is a working assumption and in no way must it be taken as a commitment on our part. We at the Board assess the course of monetary policy every month considering every incoming piece of information (figure 6). The baseline scenario reflects those events that are believed to be the most likely with the information at hand at the closing of this Monetary Policy Report. There are risk scenarios, however, which if materialized, may reshape the macroeconomic environment and, therefore, may alter the course of monetary policy. On this opportunity, having evaluated the alternative scenarios, the Board estimates that the risk balance is unbiased for both output and inflation. Internationally, there is the possibility of a sharper slowdown in the emerging world, especially motivated by a deceleration in China. In addition to its effects on our trading partners’ growth, such a scenario is worrisome because of its potential impact on copper prices, our current account and our external financing needs. Scenarios of this type, with significant exchange rate depreciations, may induce inflationary pressures in the short term, especially if combined with a persistently tight labor market and increasing real wages. Complex political and financial conditions persist in the Eurozone, so recurrent episodes of increased volatility are part of the baseline scenario.