from ideal, but our economic fundamentals remain firm. inflation is expected to be manageable and is forecast to fall within the target range of 3. 5 to 5. 5 percent. in other words, we do not see drastic changes in our policy rate settings. at the same time, our external position will remain in surplus, with the bop surplus expected to range between $ 3 – 4 billion by yearend. this means that the peso will have fundamental support. consequently, there will be occasion for the bsp to build up its international reserves to temper exchange rate volatilities. i foresee that the banking system will remain sound and will continue to intermediate credit to the productive sectors of the economy. this will create more opportunities for lending, particularly to micro, small and medium enterprises of msmes. and as the economic recovery goes into full swing, there will be greater prospects for fee - based activities in the capital markets in support of infrastructure and expansion projects. final thoughts ladies and gentlemen, we avoided the worst global recession in decades because together we forged the political will to implement challenging reforms long before the crisis struck. moving forward, let us commit once again to move forward together to ensure an even stronger and more responsive banking system. finally, i have one more good news to share. this year, we are launching the bangko sentral ng pilipinas art competition which we call “ tanaw. ” this is the first time we are launching a national painting competition. our objective is to support the development of philippine art by providing incentives for excellence to filipino artists. bangko sentral has one of the most extensive collection of philippine paintings and pre - historic gold in our country today. this is due principally to the vision of dr. jaime laya, former governor of the central bank of the philippines. ladies and gentlemen, let us thank dr. laya for this legacy with a round of applause. for your information, dr. laya has agreed to chair the bsp cultural properties acquisition advisory committee which counts as members national museum director corazon alvina, art educator deanna ongpin - recto, art critic cid reyes, bsp deputy governor diwa guinigundo, bsp director fe de la cruz and monetary board members raul boncan and juanita amatong as advisers. with this art competition, we broaden bangko sentral ’ s involvement in the preservation and promotion of philippine arts and culture. in the process, we create more

output volatility. [ i will leave this for james to further explain during his presentation tomorrow. ] for the second type of change : on ways to design and deliver products to improve access to financial service. financial product providers need to be mindful that, while most of the new entrants ( generally the poor ) have had to be savvy to deal with their unpredictable cashflows to “ survive ”, they are not ( necessarily ) as capable in dealing with a whole array of new financial products. moreover, banks must also be careful to extend certain types of credit to certain clients. this could just expose lenders to higher risks and it can also expose illinformed borrowers to increased risk of debt distress. these concerns related to product development highlight the need for proportionate regulation that adequately balances the need for flexibility and openness to innovation, on one hand, with that of mechanisms to ensure that risks are properly managed, on the other. this will allow market contestability and the development of market - based solutions to serve markets that were traditionally unserved or underserved. we ’ ve already seen innovative market - based approaches to improve credit access for microfinance borrowers. we ’ ve witnessed the move from brick - and - mortar offices to alternative financial service providers such a micro banking offices and e - money issuers. addressing technological innovation : thru financial education, consumer protection and proportionate regulation innovations, particularly through financial technology, can indeed be the catalyst for greater financial inclusion. technological innovation has the potential to reduce costs and accelerate the on - boarding of currently excluded markets into the formal financial system. in addition, technology solutions promise to enhance regulatory capacity and tools to supervise the market, and facilitate regulatory compliance and reporting of financial institutions. some examples of these include : 1. big data analytics and algorithms that can be used to address information assymetry in financial service provision ( e. g., analytics of social media behavior can predict financial behavior of target clients ) ; 2. crowdfunding platforms that may be utilized for generating funds for smes, start - ups and innovators. ( e. g., peer - to - peer lending or equity crowdfunding ) 3. digital currencies. ( when this is safely managed, this may facilitate payments, money transfers and e - commerce. ) 4. regtech or using technology to enhance regulatory capacity and enable regulators to analyze data to ensure timely supervision and intervention. as traditional players (