the most advisable thing to do is to continue withdrawing the monetary impulse. the timing of these changes will be analyzed at each meeting, including pauses to assess the effects on the economy of adjustments already made. accordingly, as it has done in the past, the board will adopt every necessary measure to deal with events that reshape the macroeconomic scenario and inflation prospects. inflation is an bis central bankers ’ speeches evil that hits hardest the people with less income. despite reduced risks of a significant increase in inflation, we must remain on the watch for pressures incubating that might obstruct the convergence of inflation to the target and that, ultimately, impose higher costs to the society as a whole. as i have said time and again, the best contribution that the central bank can make to the country ’ s development is to keep inflation low and stable, providing the grounds for sustainable growth. thus, the board will continue to guide its monetary policy so that projected inflation stands at three percent over a two - year horizon. thank you. figure 1 inflation indicators ( annual change, percent ) - 2 - 4 - 2 - 4 cpi cpix cpix1 cpi w / o foodstuffs and energy sources : central bank of chile and national statistics institute. figure 2 inflation expectations ( percent ) ees at december 2011 fos 2 year ahea ees 2 year ahead fos 1 year ahead ees 1 year ahead perceived ipec inflation imce costs in 3 months ( 1 ) financial operators survey ( fos ) of first half of the month. ( 2 ) percentage of respondents who believe that inflation will rise " much " in the next twelve months. ( 3 ) number above ( below ) 50 points denotes higher ( lower ) costs three month ahead. fuentes : adimark, banco central de chile y universidad adolfo ibanez / icare. bis central bankers ’ speeches table 1 economic growth and current account ( annual change, percent ) 2011 ( f ) gdp national income - 1. 7 - 1. 9 5. 2 15. 7 6. 0 - 7. 0 6. 9 domestic demand domestic demand ( w / o inventory change ) gross fixed capital formation t otal consumption goods and services exports goods and services imports - 5. 9 - 2. 9 - 15. 9 1. 9 - 6. 4 - 14. 6 16. 4 11. 5 18. 8 9. 3 1. 9 29. 5 8. 5 9. 2 11.

to increase and are, according to most expectations, slated to continue increasing over the course of the next few years. these monetary policy trends have naturally led to discussions regarding their implications for capital flows, current accounts, economic growth, and real exchange rates. in particular, some concerns have been voiced about the risk of returning to a situation much like the one observed in the mid 2000s, when low interest rates in the developed world boosted capital flows into emerging economies. with the purpose of increasing their liquidity safeguards and stabilizing real exchange rates, official reserves in emerging economies, accumulated through sterilized interventions, precluded current account adjustment, artificially boosting tradable sector growth. this led to global imbalances and, so the argument goes, facilitated ( or even caused ) global financial unrest. the above argument depends on whether capital inflows to emerging economies, which were indeed substantial in 2006 – 2008 ( see figure 1 ), are driven primarily by interest rate differentials or by medium term growth prospects. it is noteworthy to see how these interest rate differentials have evolved over time. figure 2 plots ( simple ) average monetary policy rates for a group of developed and emerging economies, as well as chile. it is striking that, whereas on average it stood at 440 basis points ( bp ) between january 2006 and july 2008, now it is barely 50 bp lower ( 390 bp ). intriguingly, market expectations for interest rate differentials hover between 400 bp and 450 bp over the next year. it would require substantial sensitiveness to interest rate differentials to make the argument that these are the main drivers of capital inflows. moreover, the decade from 1996 to 2005 witnessed an average differential above 1000 bp, affected of course by risk premia, but still indicates that crude short - term interest rate differentials by themselves are not suggestive of substantial capital inflows. in terms of growth prospects, the picture is markedly different. figure 3 presents imf ’ s past data and forecasts for economic growth in developed and emerging economies. it is clear that, from 2000 to 2010, the growth differential between developed and emerging economies widened significantly, reaching around 5. 5 % between 2007 and 2010. hence, the great recession did not affect significantly this growth differential, and prospects for the near term also indicate that growth in emerging economies will outpace growth in developed economies, but at a rate ( 4 % – 4. 5 % ) not that different from the average between