rodrigo vergara : the monetary policy report and the financial stability report presentation by mr rodrigo vergara, governor of the central bank of chile, before the finance commission of the honorable senate of the republic, santiago de chile, 1 july 2013. * * * the monetary policy report of june 2013 and the financial stability report of the first half of 2013 can be found at http : / / www. bcentral. cl. introduction mr. president of the senate ’ s finance commission, senator andres zaldivar, senators members of this commission, ladies and gentlemen, i appreciate your invitation to present our board ’ s vision on recent macroeconomic and financial developments, their prospects and implications for monetary and financial policy. this vision is contained in detail in our monetary policy report of june 2013 and our financial stability report of the first half of 2013. the macroeconomic scenario facing the chilean economy has undergone significant changes in recent months. output and demand decelerated and, although some moderation in their growth rates was expected and desirable, the first quarter brought a sharper adjustment than had been anticipated. on the external front, there have been significant developments in the composition of global growth, the trajectory of commodity prices and the evolution of global financial markets. from a medium - term perspective, recent developments point to a healthy normalization of the unusual international conditions that have prevailed for some years now, and their effects on our local economy. in the short term, however, these adjustments can lead to greater volatility in the real economy and financial markets as investment portfolios are adjusted to new conditions and spending plans are reviewed. i can responsibly say that our economy is well prepared to accommodate these changes in the international arena, emphasizing the contribution of our inflation targeting with floating exchange rate scheme, the strength of the fiscal accounts and the financial system as well as our sound external financing structure. all these elements allow us to be reasonably confident in dealing with the ups and downs of the external environment and mitigating its impact on the chilean economy and the welfare of our population. in the first quarter of 2013, output increased 4. 1 percent annually, 1. 6 percentage points less than it did in late 2012. on the expenditure side, the slowdown of investment stood out. part of this adjustment was expected, considering that a number of wide - ranging mining and energy projects are entering their final phase. there are also transitory elements relating to one - time imports of capital goods that are more volatile

the development process. while the maintenance of price stability has increasingly become the main mandate of most central banks, those in the developing countries are charged with the responsibility to promote economic development, in addition to the pursuit of the macroeconomic stabilization objective. central banks ’ direct role in the development process, especially in less developed economies, stems from the absence of efficient financial markets and institutional structures, which are pre - requisite for the effective transmission of monetary policy to the real economy. in addition, in the pursuit of the overall economic goals of the nation, the stabilization objective of the central banker often conflicts with the sectoral pursuits of the political authority. one thing all central banks, the world over, have in common is the maintenance of financial stability as a key factor influencing macroeconomic performance and efficient payments system. the legal framework and institutional arrangements vary widely country by country in the context of the act establishing the central bank. as we are all aware, a central bank is usually established by an act of parliament that clearly states its mandate. iii. the experience of the central bank of nigeria ( cbn ) the critical role of the cbn in the management of the nigerian economy has been made obvious by the provisions of the law establishing the bank. the core mandate of the cbn as spelt out in the cbn act of 1958 include : issuance of legal tender currency, banker and financial adviser to the federal government, lender of last resort to banks, maintenance of external reserves to safeguard the international value of the currency, promotion of monetary stability and a sound and efficient financial system. in order to discharge its responsibility efficiently and effectively, the bank must have credibility within and outside the country. towards this end, the act, with the subsequent amendments, goes further to establish a governance structure with an independent board with responsibility for policy formulation and administration of the bank, subject to periodic reports to both the executive and legislative arms of the government. although the original act mandates the cbn to promote monetary stability, it was in the 1999 amendment to the act that actually conferred discretionary powers on the governor, the board and management of the bank, in the formulation and implementation of monetary policy, especially the determination of the appropriate interest rate regime and exchange rate policy. in other words, the bank was granted instrument autonomy under the amendment to the act. in view of the destabilizing effect of monetary financing of government deficits, the acts specifies the limit of the cbn lending to government in terms of ways and means advances to the federal government