on a small, open economy like chile, especially with the lags that monetary policy operates, we have succeeded as a country in mitigating them substantially. we have preserved the macroeconomic stability framework, even providing room for an extraordinarily stimulating mix of macroeconomic policies. therefore, we can now state without a doubt that, had we not adopted the stimulus actions you have seen in recent months, our country ’ s economy would be in considerably weaker shape and we would not be able to envision any prospects of recovery for the second half of this year. conditions are ripe for the chilean economy to experience a healthy recovery of output and expenditure during the second half of this year. for the economy to pick up, however, it will still require that the global uncertainty, regarding both the financial dimensions of the crisis and its effects on world activity, fades. we have seen promising signs allowing us to be hopeful, but it is premature to think that the bad news are over. for this reason, we believe that it will be necessary to maintain the monetary stimulus for a prolonged period of time, in order to ensure that inflation approaches its 3 % target and prevent it from stabilizing undesirably below that target. the latest decision of the central bank board and its recent effects are proof that the monetary policy has effective instruments to continue applying the monetary stimulus even with the mpr at its minimum. again, i am grateful to the finance commission of the honorable chamber of representatives and its president, representative mr. julio dittborn, for letting me share with you our visions. the transparency with which we conduct our monetary policy is crucial in the uncertain global environment we are still enduring. thank you very much. figure 1 expectations for the mpr ( percent ) jul. jul. jul. mpr sep.'08 report ees july'09 current forward jul. ees sep.'08 report ( 1 ) weekly averages used for the forward curve. ( 2 ) forward curve at 21 july 2009. source : central bank of chile. figure 2 long - term interest rates ( percent ) 4. 5 4. 5 4. 0 4. 0 3. 5 3. 5 3. 0 3. 0 2. 5 2. 5 2. 0 2. 0 1. 5 1. 5 1. 0 1. 0 oct. 08 10 - year bcu jan. 09 apr. 09 10 - year u. s. a. jul. 09 10 - year eurozone

jose de gregorio : autonomy of the central bank of chile, 20 years on presentation by mr jose de gregorio, governor of the central bank of chile, at the commemoration of the 20 years of autonomy of the central bank of chile, organised by icare, santiago, 29 october 2009. i thank luis felipe cespedes and jorge restrepo for valuable comments and ideas in preparing this presentation. * * * the autonomy of the central bank of chile is enshrined in the constitution, specifically in the basic constitutional act of the central bank of chile enacted in october 1989 that constituted a fundamental change for the functioning of the chilean economy. the law stipulates that the central bank is an autonomous entity, of a technical nature, created in accordance with constitutional provisions, with full legal capacity, the full owner of its assets and of indefinite duration. its third article states that “ the bank shall have as its purposes to look after the stability of the currency and the normal functioning of internal and external payments. ” it then adds that “ the authority of the bank, for these purposes, shall include regulating the amount of currency and credit in circulation, the performance of credit transactions and foreign exchange, as well as the issuance of regulatory provisions regarding monetary, credit, financing and foreign exchange matters. ” in addition, it establishes that “ no public expenditure or credit of any nature may be financed either directly or indirectly with loans granted by the bank. ” finally, article six states that “ when passing its resolutions, the board shall consider the general orientation of the government ’ s economic policies. ” this is a clear mandate for the central bank of chile, by which it establishes instruments and mechanisms for the designation and removal of board members, as well as vehicles for coordination with the executive. in addition, its autonomy is further reinforced and legitimated through the achievement of said objectives and by the bank ’ s communication and transparency policy, whose effects go far beyond the provisions in the law regarding the obligation to inform about its decisions. in this presentation i will address some of the main elements concerning the autonomy of central banks, as well as an evaluation of the principal accomplishments of the past twenty years. the reasons for pursuing autonomy high inflation is costly for society because it is associated with higher price volatility, which distorts resource allocation. erroneous price signals lead to mistaken investment decisions, that is, to a less efficient use of resources, which reduces the economy ’ s productive capacity and, ultimately,