fiscal responsibility act. finally, it uses as a working assumption that the mpr will follow a path comparable to the one that can be derived from the prices of financial assets observed at the statistical cutoff of this report ( figure 2 ). the baseline scenario reflects the events that the board believes to be the most likely to occur with the information at hand at the statistical cutoff date of the report. however, there are risk scenarios which, if materialized, may alter the macroeconomic outlook, with implications on monetary policy. on this occasion, after assessing the alternative scenarios, the board estimates that the risk balance for both output and inflation is unbiased. although the risks in the international scenario are similar to those in previous reports, their possibility of occurrence is smaller. still, structural issues persist in the eurozone, so the regained confidence in financial markets is yet to be consolidated. repeated or intensified financial stress episodes, in a context where banks are more cautious in their lending decisions and capital requirements have increased, could deepen credit constraints, complicating the growth outlook for the region and the world at large. there are also persistent doubts about how china ’ s slowdown will be. if more intense, its effects will not only hinder world growth, but also pull down commodity prices, especially for copper. conversely, other economies could well perform better than expected, and offset part of these effects. the calmer external financial markets and the renewed appetite for risk have revived concerns about how to accommodate the new capital flows into emerging economies. prolonging the strong monetary stimuli in the developed world, particularly in the u. s., may foster an extension of global imbalances. public indebtedness is elevated in the u. s. and the high oil price hinders the resolution of its external deficit. now there is also the worsening of geopolitical tensions surrounding iran which could significantly affect the oil price, with negative effects on world growth and stronger pressures on inflation. in chile, the persistence of strong domestic spending may alter the baseline scenario in two ways. on one hand, it may intensify the inflationary risks now perceived, and increase the propagation of supply - side shocks, like those in oil or fresh fruits & vegetables. it is also possible that the velocity at which core inflation has increased is associated with tighter output gaps than assumed in the baseline scenario. on the other hand, the sustained growth in domestic demand may trigger a widening of the current account deficit and

amplify the effects of shocks from abroad on the chilean economy, especially if accompanied by a falling copper price. let me share with you some final thoughts. final thoughts the macroeconomic environment just described has opposing effects, as there are significant risks from different fronts. as i said, the baseline scenario uses as a working assumption that the mpr will follow a path comparable to the one that can be derived from the prices of financial assets observed at the statistical cutoff of this report. any deviations away from this trajectory will depend on the implications of domestic and external macroeconomic developments on the inflation outlook. as i also said at the beginning, while risks for short - term inflation have increased, the risks from abroad are still important and may cause significant damage to the chilean economy. bis central bankers ’ speeches accordingly, the complexity of the present scenario calls for particularly prudent monetary policy making. on the side of domestic output, the projections we are now presenting show stronger growth, mainly because recently output and demand have risen above december ’ s forecasts. on the prices side, our evaluation points at a higher level of inflation, especially in the short run. our view that output gaps are closed implies that economic growth should converge to its trend in order not to cause imbalances that end up being very costly. experience has taught us how damaging an increase in inflation can be, particularly to the poorer population. it has also taught us the importance of expenditure not growing excessively, in order to avoid imbalances in the external accounts that erode our capacity to deal with shocks of different kinds. this is especially true at this moment, when we are confronting these risks of the domestic economy with doubts about how warranted this better mood of external markets is. the situation of developed economies is very complex, and teaches a great lesson in how phenomena that are overlooked and not addressed on time may end up taking a massive toll on the people. for all this, i want to stress the importance of proper management of the expectations about the behavior of our economy and, of course, of our monetary policy. prudent monetary policy conduct means being prepared for any scenario, assessing them carefully, and adjusting policy as required. let me reiterate the commitment of the board of the central bank of chile with a monetary policy oriented at keeping inflation low and stable. this is certainly the best contribution we can make to the prosperity of our country. thank you. bis central bankers ’ speeches table 1 international baseline scenario