from ideal, but our economic fundamentals remain firm. inflation is expected to be manageable and is forecast to fall within the target range of 3. 5 to 5. 5 percent. in other words, we do not see drastic changes in our policy rate settings. at the same time, our external position will remain in surplus, with the bop surplus expected to range between $ 3 – 4 billion by yearend. this means that the peso will have fundamental support. consequently, there will be occasion for the bsp to build up its international reserves to temper exchange rate volatilities. i foresee that the banking system will remain sound and will continue to intermediate credit to the productive sectors of the economy. this will create more opportunities for lending, particularly to micro, small and medium enterprises of msmes. and as the economic recovery goes into full swing, there will be greater prospects for fee - based activities in the capital markets in support of infrastructure and expansion projects. final thoughts ladies and gentlemen, we avoided the worst global recession in decades because together we forged the political will to implement challenging reforms long before the crisis struck. moving forward, let us commit once again to move forward together to ensure an even stronger and more responsive banking system. finally, i have one more good news to share. this year, we are launching the bangko sentral ng pilipinas art competition which we call “ tanaw. ” this is the first time we are launching a national painting competition. our objective is to support the development of philippine art by providing incentives for excellence to filipino artists. bangko sentral has one of the most extensive collection of philippine paintings and pre - historic gold in our country today. this is due principally to the vision of dr. jaime laya, former governor of the central bank of the philippines. ladies and gentlemen, let us thank dr. laya for this legacy with a round of applause. for your information, dr. laya has agreed to chair the bsp cultural properties acquisition advisory committee which counts as members national museum director corazon alvina, art educator deanna ongpin - recto, art critic cid reyes, bsp deputy governor diwa guinigundo, bsp director fe de la cruz and monetary board members raul boncan and juanita amatong as advisers. with this art competition, we broaden bangko sentral ’ s involvement in the preservation and promotion of philippine arts and culture. in the process, we create more

gains in real income owing to generally lower inflation. furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. this being said, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. overall, euro area economic activity should stabilise and recover at a slow pace. the risks surrounding the economic outlook for the euro area continue to be on the downside. recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 1. 6 % in july 2013, unchanged from june. annual inflation rates are currently expected to temporarily fall over the coming months, owing particularly to base effects relating to energy price developments twelve months earlier. taking the appropriate medium - term perspective, underlying price pressures are expected to remain subdued, reflecting the broad - based bis central bankers ’ speeches weakness in aggregate demand and the modest pace of the recovery. medium to long - term inflation expectations continue to be firmly anchored in line with price stability. the risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker than expected economic activity. turning to the monetary analysis, underlying money and, in particular, credit growth remained subdued in june. annual growth in broad money ( m3 ) decreased in june to 2. 3 %, from 2. 9 % in may. moreover, annual growth in m1 decreased to 7. 5 % in june, from 8. 4 % in may. the annual rate of change of loans to the private sector weakened further. while the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) remained at 0. 3 % in june, broadly unchanged since the turn of the year, the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) was – 2. 3 % in june, after – 2. 1 % in may. weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit