will respond to the instruments used2. the link between economic uncertainty and policy gradualism seems especially relevant at the present juncture when several uncertainties about the effects of monetary policy are prevailing. i will consider two of them in more detail : the lower state of the natural rate of interest, and the changing relationship between economic activity and inflation – in textbook terms, the position and shape of the phillips curve. the natural rate of interest interest rates in the euro area and in other advanced economies are presently lower than what they used to be prior to the global financial crisis. this phenomenon, visible through the term structure of interest rates, is partly policy - induced, but it is also likely that the so - called long - term equilibrium real interest rate has declined. the natural rate of interest can be defined as the real interest rate that is consistent with the macroeconomic equilibrium. it is the real interest rate that would prevail if the economy were at the equilibrium employment, the output at its potential level, and the inflation stable – neither accelerating nor decelerating. it is a major reference point for monetary policy, as it defines the “ neutral ” policy stance at any given time. low equilibrium rates obviously affect the monetary policy stance, and any given policy rate is less stimulatory with lower equilibrium rates. 3 if policy induces a short - term real interest rate that is higher than the natural rate, monetary policy is restrictive. a major analytical problem is that the natural rate is not a constant but a moving target, and as a theoretical concept it is also unobservable. that is to say, it cannot be measured outright — instead it must be inferred using a variety of econometric methods. 2 / 6 bis central bankers'speeches estimates of the natural rate, drawing from various studies, lead to the conclusion that the natural real rate of interest has declined in the major advanced economies over the last 20 years or so, and, in the euro area, it is currently significantly lower than prior to the financial crisis. the slide shows a range of estimates of the natural rate for the euro area. slide 3. estimates of the natural rate of interest in the euro area however, the estimates of the natural rate of interest are subject to a lot of uncertainty. 4 the reasons for the decline of the natural rate of interest rate are linked to changes in the savinginvestment balance in the advanced economies, both in europe and globally. an increase in the economy ’ s prop

eu parliament, and the ecb will perform this role. the single resolution mechanism has received broad agreement emerging asia includes china, india, and the asean - 5 countries ( indonesia, malaysia, the philippines, thailand, and viet nam ). bis central bankers ’ speeches at the finance and eu leaders level, but this is still for ratification in the eu parliament in may. market volatility may heighten as markets carefully watch how the issues will be resolved. in the face of these risks, the bsp has a menu of options that could be deployed : we have standing facilities to ensure adequate domestic liquidity for banks should funding sources dry up. we would maintain a strategic presence in the fx market, while keeping the value of the exchange rate essentially market - determined. we could implement targeted macroprudential measures. in addition : 1. timely and clear communication with market players would quell anxieties. 2. the careful and regular surveillance of risks would allow for prompt and appropriate responses. 3. in the event of liquidity problems, there are regional financial arrangements that the philippines can use. in light of all these, the outlook on philippine growth and inflation remains favorable. the economy is expected to grow between 6. 5 to 7. 5 percent in 2014, despite the chain of untoward incidents. recovery and rehabilitation efforts are expected to bolster growth. for the medium - term, growth would be supported by stronger performance from the construction, manufacturing, business process outsourcing and private services. the country ’ s attainment of investment grade status may attract foreign direct investments that would in turn generate jobs. inflation is expected to remain within the target range over the policy horizon. in 2014, inflation is seen to be slightly higher than the mid - point of the target range of 3 – 5 percent, due mainly to higher food prices and possible increases in utility rates but comfortably within the target range. moving forward, the bsp will remain committed to staying the course toward sustained growth, while firmly adhering to its mandate of safeguarding price stability and ensuring the financial system remains resilient. on monetary policy, we will ensure that liquidity remains adequate to support economic growth with manageable inflation. on financial sector policy, the bsp commits to maintain the stability of the financial system by continuing to craft banking regulations that are responsive, consistent with best practice and in line with the international market reform agenda. on the external front, the bsp remains supportive of policies that will help cushion the