so future reductions bis central bankers ’ speeches are expected, which might have a greater impact because of the significant number of operations that are performed with interest rates in the 35 to 40 percent range ( figure 13 ). bank financial indicators are sound and stress tests show that capital levels are adequate to confront a severe stress episode ( figure 14 ). although bank profitability has increased lately, this was boosted by the temporary effect of higher inflation. the interest rate spread has been stable over 2014 and continues to be the main contributor to the banking system ’ s profits. the impact of the stress scenario involves a drop in profits similar to the one in the previous ief, but as the initial profitability was better the banks can obtain a positive closing roe in this scenario. bond issues, locally and abroad, have helped to diversify the banks ’ funding sources ( figure 15 ). lower funding costs have favored debt issues locally and abroad, increasing the duration of liabilities. some banks operate with high dependence on wholesale sources, which can be a significant vulnerability if these investors change their portfolio decisions or flows become more volatile. to sum up, the present financial situation of enterprises and households, while still strong, is less comfortable than it was some years back, so it is not as strong to deal with a worsening of the domestic or international macroeconomic environment. thus, it is important for agents to thoroughly assess their borrowing and lending decisions going forward. i would like to finish with some thoughts. final thoughts 2014 has not been a good year for our economy : growth has been slow and inflation has surpassed our tolerance range for several months. the analysis i have shared with you today shows that to a great extent these numbers result from the natural adjustment of an economy experiencing major changes in both local and external conditions. these changes require big adjustments in relative prices to reallocate resources across sectors. we mustn ’ t forget that the external scenario has been greatly modified in the past few quarters. we saw the end of the so - called commodity super - cycle. its negative impact on the copper price has affected mining investment, one of our economy ’ s main sources of growth in recent times. china ’ s economic situation has been weaker than forecast, as has been the situation of several other emerging economies. this has increased the volatility of the external financial conditions facing emerging economies, a phenomenon that has intensified as the normalization of us monetary policy approaches. we have been often asked whether the discussion on the reforms now being studied

- looking environment, dealing with a large number of unobservable concepts, has an ultimate responsibility to use all the relevant information at hand. monetary policy making is not a bureaucratic procedure, but an intense exercise of judgment. of course, we must be able to share such information and judgment with the public to make our decisions easier to understand. as for judgment, a major challenge for central banks is to connect incoming information with medium - term prospects. while central bank boards generally meet at regular intervals, they need to assess when accumulated information is sufficient to indicate a change in the medium - term scenario, possibly demanding a change in the trajectory of monetary policy. in the case of emerging countries, fx pass - through poses a major challenge, as currency parities may exert substantial pressure on inflation in the short run, gaining a lot of public attention, but they may not prevail in longer spells. the source of currency volatility and the exposure of economic agents to fx risk are key factors that, in our experience, may help assess the medium - term impact of exchange rate movements and condition the need for a monetary policy response. a similar challenge to the exercise of judgment by central banks is to distinguish between “ normal ” times and stressed scenarios. while in normal times, economies can adjust gradually and tolerance for deviations for a charted path may be higher, a stressed environments is characterized by a very low tolerance to risk, shorter time horizons and powerful feedback loops with financial markets. the recent experience of fast - shifting conditions for some emerging economies that were caught in the ebbing tide of capital movements is in stark contrast with the slow - motion of monetary policy in advanced countries, which is also a source of theoretical puzzles and information challenges. acknowledgements to guide our discussions on these issues over the next two days, we can rely on a distinguished group of economists that have joined us to present and discuss issues concerning inflation dynamics and monetary policy. i would especially like to thank gonzalo castex, jordi gali, diego saravia, and joaquin fuenzalida for putting together the program, and carolina besa, paloma navarro, and maria jose reyes for helping with the organization. i wish you all a fruitful discussion and a pleasant stay in santiago. * * *