complex structured products and the liquidity in this market under stressed conditions. let me point out three key weaknesses : • first, the ability of investors to assess the extent of concentrations among various types of collateral – including sub - prime – within the structured finance securities has clearly been shown to be less than adequate. indeed, conducting adequate due diligence regarding the nature of underlying investment exposures cannot be replaced by decision - making based almost exclusively on ratings. • second, market participants were not sufficiently alert to the possibility that liquidity could dry up in structured finance markets, even though secondary market liquidity in the various structured finance markets has been traditionally thin. as you know, there are several reasons for this, inter alia : the specificity of these instruments, which are often tailor - made ; the “ buy - and - hold ” strategies followed by a large number of investors ( including, pension funds, insurers, and banks ) ; and the limited comparability of mark - to - model valuations, stemming from the complexity of these instruments. • third, the asset backed commercial paper ( abcp ) structures had intrinsic liquidity risk because they invested the proceeds of short term liabilities into longer maturity structured finance assets. in some cases, certain types of abcp structures such as structured investment vehicles ( sivs ) faced increased pressure resulting from an inability to roll - over. this came both from investor anxiety concerning the underlying collateral and the inability to value adequately the collateral as they were forced to sell assets. there are indications that the liquidity strains associated to these structures are not yet over. three key weaknesses of credit markets whilst it is too early to make a definitive assessment, certain supervisory and regulatory issues can already be identified as warranting further attention or action. initiatives are already underway at the international and eu level to address these various issues, but for our exchange of views here today i would like to focus on three key issues : transparency, valuation of complex structured products, and liquidity risk management practices, including liquidity risk stress - testing. • first, transparency for markets, investors and regulators. adequate transparency is a necessary basis for an efficient functioning of financial markets. recent experience has shown how perceived opaqueness or uncertainty regarding the underlying exposures, in particular of financial institutions, has translated into a loss of confidence with a resulting disruption in the interbank market. there have been recently many calls for enhanced market transparency both from banks ( e. g. enhanced disclosure of banks ’ liquid

3. 0 percent by next year. maximizing expanded toolkit : adjusting the policy rate and managing the exchange rate now, what did we [ at the central bank ] do? it is quite simple : we raised rates. the other one is, we are also an exchange rate - managing central bank. if you look at our record, we are able to build our foreign exchange ( forex ) reserves when the peso is strong. that is why our forex reserves went from us $ 45 billion to almost a hundred billion dollars between 2008 to 2012. on the other hand, we can allow the peso to depreciate if that is part of market fundamentals. looking to history as guide my point is, we are quite confident that we are already on a target - consistent path of inflation. if you count the number of months where we are [ inflation was ] above target, in the past, the longest [ streak ] was 15 months. in this particular case, as i said, we were hit by a really large and long wave of supply shocks. in the last 12 months, everything was 0. 4 percent [ in terms of m - o - m inflation ] or higher. there were months [ when m - o - m inflation was ] of 0. 8 percent or 1. 0 percent and, as i said, january [ m - o - m inflation ] was really terrible at 1. 7 percent. 2 / 4 bis - central bankers'speeches indeed, when you look at every month when inflation is high, you can actually point at exactly what products [ items in the consumer price index ] caused it. this time, we think that we will break our record : [ it may take ] 19 or 20 months of inflation being abovetarget from the previous record of 15 months. policy settings remain reasonable now, is [ a policy rate of ] 6. 0 percent a high or low rate? well, if you look at the current inflation, it looks low, right? [ headline ] inflation is 8. 7 percent [ in january ]. however, relative to our forecasts, it is a reasonable one. our forecast is that by november or december, we will [ inflation ] be below 4. 0 percent. the reality is that the current policy setting is reasonable - not too tight, not too loose monetary policy. part of the [ reason behind elevated ] inflation is due to demand. the reason is, we were all surprised by the 7.