the lower part of the tolerance range, to start converging back to the target by year ’ s end. domestic activity has also shown some surprises. it grew in line with forecasts in the third quarter and even somewhat better in sectors not related with natural resources — what we call other gdp. however, it began the fourth quarter quite poorly. the decline in mining activity weighed significantly, as has been the trend throughout the year, and so did some specific industry lines. however, the lower dynamism estimated for the last quarter of the year leads us to expect that 2016 growth will be in the lower bound of the range projected in september. going forward, we estimate that the economy will return to near - potential expansion rates towards the end of 2017, although at a somewhat slower pace than we estimated in september. abroad, the biggest news has been the changes in financial markets after the us election. the movements that followed took a toll on financial conditions, despite that they are still 1 / 19 bis central bankers'speeches expansionary from a historical standpoint. last week the federal reserve raised the policy rate for the second time, a decision that was widely expected by the markets. the surprise was the confirmation of a slightly faster withdrawal of the monetary stimulus, which has shaken the financial markets in recent days. as for activity and inflation, they continue to show advances in the developed world, while they are tending to stabilize in the main emerging economies. we see some improvement in the terms of trade in the near future. considering all the above and its effects on the medium - term outlook, the baseline scenario of this mp report has revised the 2017 inflation trajectory from september downward. this is because core inflation — what we call the cpiefe ( i. e. excluding foods and energy ) — is expected to drop significantly, due to the important weight in inflation of import - related prices. the normally more persistent services inflation will also fall, although considering the basis of comparison effect, the impact of lower inflation on indexed prices and its own inertia. all this in a context where, despite some widening, the output gaps are still bounded and the expected external impulse facing the chilean economy over the next two years shows no big change from september. still, beyond these changed projections, what merits the most attention is that the range of risks has increased. in this context, in our latest monetary policy meetings we have held the monetary policy interest rate ( mpr ) unchanged at 3. 5 %. at the

the behavior of the financial industry, but the policy implications are not straightforward. but from the three points i have raised – misbehavior of market participants, comprehensive capture, and policymakers ’ indifference – there are three simple conclusions : we need tight regulation, transparency and disclosure of conflicts of interest, and permanent monitoring of financial stability. what else may go wrong? financial systems in emerging markets escaped from the crisis due to some extent to prudent regulation, built on a history of recurrent crises. but perhaps it was also due to the fact that we are somewhat slow to adapt to financial innovation. indeed, many issues, such as the use of derivatives by the banking industry, were being discussed in emerging markets on the eve of the crisis. of course, we are much more aware of the risks of financial innovation. it is particularly important to understand innovations – something that i think very few understood before the crisis. a simple rule for policymaking is that if you cannot understand what is really being proposed and you do not see the benefits, it is better steer clear. we used this simple dictum at the central bank of chile. not everything is bright in emerging markets. there are many challenges. one issue that has not been a problem so far, but presents potential risks, is the role of public banks. some research has shown that in latin america public banks are less procyclical than private banks ( micco and panizza, 2006 ), but this could be for good or bad reasons. if public banks are prudent and avoid jumping on the bandwagon of optimism during the upturn this is good – they may even soften credit constraints during the downturn. however, public banks may also be an instrument to pay back supporters of politicians, and certainly this is unfair and inefficient. public banks may also be subject to capture by the electoral cycle ( micco et al., 2007 ), or used as an instrument to implement industrial policy. given the lack of other instruments, providing credit for selected economic activities may be a way to promote specific sectors. there are certainly better tools for promoting specific sectors, especially from efficiency, fiscal, transparency and accountability points of view. an issue that has been on the agenda in most countries is financial consumer protection. this is, of course, a welcome development, and is a clear demand from society. transparency in financial charges and the nature of the contracts, the ability to change across financial agents,