to strengthen macrofundamentals, induced some countries to believe that they had some degrees of freedom in macropolicy management that they really did not have. almost a year ago, the global financial cycle was more clearly transmitted to emes, probably due to the fact that the process of policy normalization in key advanced economies, markedly in the united states, started. the beginning of the end of the era of low interest rates and ample liquidity, together with the correction in commodity prices that has followed the economic slowdown in china, has invited a re - evaluation in emes prospects. as a result, vulnerabilities in economic fundamentals in several emes have been exposed, in particular in those with high levels of public and private leverage, which in turn have produced relatively high fiscal and current account deficits. tighter financial conditions, together with the terms of trade corrections and the lasting real effects of prolonged and excessive currency appreciation, have been reflected in a widespread slowdown in emes economic growth. to be sure, to have advanced economies, which represent approximately 50 percent of world ’ s gdp, growing below potential, has not helped emes growth either. so, with the benefit of hindsight, my estimation is that the hypothesis of “ emes decoupling ” was more a mirage than reality. from a financial stability point of view, given these underlying conditions, the main risk for emes is to be confronted with sudden massive capital reversals, which so far have not happened ; incipient reversals yes, but not massive. to address this issue, it is useful to try to identify which could be the triggers of perverse market reactions. there could be both domestic and external triggers. on the domestic side : – poor macroeconomic policy management, in particular if the objective is to artificially stimulate economic growth ; and – concerns related to growing internal and external imbalances ; for the latter not only the current account matters, but also the magnitude and composition of gross asset flows. in turn, as external triggers we could have at least four : – abrupt changes in monetary policy in advanced economies ; – an interruption in the ongoing strengthening in the european union ; – contagion, given the interconnection in financial markets and the possibility of sudden rebalancing of investors ’ portfolios, and bis central bankers ’ speeches – geopolitical risks. therefore, from a political economy point of view, taking a perspective that goes beyond the domain of

of an upward trend for inflation even in the absence of further shocks ; risks for inflation and its expectations deriving from a sharp depreciation of the exchange rate ; the possibility of a higher than anticipated level for the peso - dollar rate for a significant period ; potential nonlinear effects of the exchange rate on prices ; and the adverse signaling that could result from the absence of decisive action in the face of evident perils for inflation. naturally, adjustment of the monetary policy stance has been considered fundamental to fulfill the constitutional mandate of the banco de mexico, based on the premise that maintaining a low and stable inflation rate represents the best contribution of the central bank to economic growth. in spite of the accumulated tightening of the monetary policy stance in mexico since late last year, the impact of the higher target for the reference rate on domestic economic activity has been alleviated by a flattening of the yield curve. interest rate increases have been concentrated on the short end of the curve, while rates for longer maturities have actually declined. looking forward, it is difficult to evaluate the possible trend of the monetary policy rate in mexico in the very short term, especially in view that some of the factors that have recently affected the most the peso - dollar rate, and particularly the electoral process in the united states, could dissipate or accentuate in coming weeks. looking beyond this special period, against the background of an output gap that is expected to remain negative throughout next year, interest rates in mexico are likely to be significantly affected by the evolution of interest rates in the united states. markets continue to anticipate a further tightening of the monetary policy stance in that country, although at a very gradual pace. to the extent that it responds to the need to contain inflation and maximize employment, this should be good news for the world and mexico ’ s economies. furthermore, as the experience with the increase of the federal funds rate in late 2015 shows, if well communicated, it need not be a source of disruption in international financial markets. however, for the reasons i underlined above, should conditions similar to those prevailing at present persist, an increase in the federal funds rate without a monetary policy response in mexico would give rise to major risks. more generally, in accordance with the central bank ’ s mandate, monetary policy in mexico will continue to focus on the attainment of the inflation target. this implies a careful monitoring of all determinants of inflation and its medium - to long - term expectations. however, special attention