cash management operations system this year, among others. at the same time, we are reorganizing our supervision and examination sector to adopt to a rapidly changing environment and implement reforms that will make our banking system stronger, more efficient, at par with international standards, and more responsive to the needs of our economy and our people. the resource management sector, on the other hand, will ensure that bspers are properly equipped with the appropriate skills and expertise required by our institution. 2008 also marks our shift to a more meaningful appraisal system in accordance with our merit system for salary adjustments and promotions. even the way we estimate and produce our currency requirements at the security plant complex is undergoing review to make it more efficient and responsive to the needs of the economy. indeed, change is happening around us. now, more than ever, we need to be open to change, to be flexible to be dynamic to achieve the goals we have set under our medium term development program. nevertheless, even as we welcome change, we should, at all times, remain faithful to the five core values of our institution, which are : patriotism, integrity, excellence, dynamism and solidarity. these core values should serve as our enduring and lasting guides as we deal with the opportunities and challenges ahead of us. ladies and gentlemen of the bangko sentral ng pilipinas. by tradition, this is the time of year when we commit to do better through what we call new year ’ s resolution. as our joint new year ’ s resolution therefore, let us commit to be guided by our core values, at all times, wherever we may be. muli sa ngalan po ng ating monetary board at nang aking pamilya kasama na ang aking maybahay na si elma at tatlong anak, ako po ay nagpapasalamat sa inyong lahat at humihiling na sana ay maging masaya, malusog, masagana, at matagumpay ang 2008 para sa ating lahat, at sa ating mga kababayan! mabuhay ang bangko sentral! mabuhay ang pilipinas!

implementation of monetary policy, and inflation targeting in particular. the need to cast a broad eye on the horizon was emphasized in a cautionary note made by us economist hyman minsky more than a decade ago. minsky – as you may remember – has written extensively on financial market fragility, and is well known for the phrase “ minsky moment ”, which refers to the slow movement of financial systems from stability to crisis. he said that economic stability and prosperous times can encourage excessive leverage and risk - taking, eventually setting the conditions for a financial crisis. related to this, there is renewed debate on whether monetary policy should react directly to changes in asset prices. the majority view is it should not. for example, us federal reserve chairman ben bernanke wrote that changes in asset prices should affect monetary policy only to the extent that they affect the central bank ’ s forecast of inflation. after all, central banks are not likely to have informational advantage over the market in assessing to what extent asset price movements are due to fundamentals and to what extent they are following what is called a “ pathological path. ” moreover, central bank stabilization of asset prices can generate moral hazard problems ; that is, the implicit “ safety net ” created by the central bank could provide an incentive for greater risk - taking in pursuit of returns. furthermore, monetary policy tends to have a weak linkage with many asset prices. we know for instance that most fluctuations in equity prices occur for reasons unrelated to monetary policy. nevertheless, recent events support the need for flexibility in this thinking. preemptive measures against the build up of asset price bubbles need not be incompatible with inflation targeting, which is an information - intensive approach. the need to monitor a broad range of variables is supported by the possibility that globalization may have further complicated the role of the consumer price index as an indicator of price pressures. for instance, increased competition from abroad can dampen the prices of tradables, so that the first symptoms of an overheating economy can show up in the prices of some non - tradables – including real estate – that may not be reflected in the cpi basket. in this respect, a flexible exchange rate can help maintain the proper balance of relative prices. second, there is a need to carefully examine present incentive structures to minimize, if not avoid, the emergence of moral hazard that can abet inappropriate risk - taking behavior. for example, analyses of the roots of the expansion of the us subprime